a major risk to indias economic recovery is that millions of households and small businesses may potentially be cut off from the credit they need according to jpmorgans chief emerging markets economist the government the central bank and analysts are underestimating the level of permanent scarring that can take place in south asias largest economy as a result of last years pandemicled contraction jahangir aziz said friday on cnbcs squawk box asia the loss of income related to the coronavirus pandemic has run into billions of dollars on an annual basis according to aziz we know that the listed companies did not suffer that much so it has to be that the smes small and medium enterprises and the households took a much larger hit he said that includes workers in the informal sector such as day laborers as well as service and domestic workers i just cant imagine that with that kind of income loss you wont have serious impairment of balance sheets of households and smes aziz added he explained a lot of it has not yet showed up in the lenders loan books because of the reserve bank of indias rbi moratorium on debt last year to mitigate the economic impact of the lockdown the central bank last year said lenders were allowed to give borrowers a temporary delay on monthly repayment of loans between march to may it was later extended till august but debt moratorium does not solve the problem it simply pushes the problem to the second half of the year aziz said the economic crisis due to last years lengthy lockdown to slow the spread of the coronavirus outbreak disproportionately affected the micro small and medium businesses as well as the informal sector millions of jobs were lost many of them permanently in fact ratings agency sp recently said that india faces a permanent loss of about 10 of economic output compared to its prepandemic path the world bank in december said workers from the informal sector lacked access to certain resources for example large firms are able to have access to credit even if they are not profitable however the access to credit and other forms of social support are not as readily available for those in the informal sector indias micro small and medium businesses contribute about 30 to the nominal gdp and the sector is the secondlargest employer in the country behind agriculture according to the central bank to support those businesses the rbi introduced emergency credit schemes and rolled out policy measures such as interest rate cuts moratorium on debt servicing and a onetime loan restructuring package according to local media reports lenders said most of the onetime restructuring option was invoked for corporate loans and very few were for retail loans which implies either people are repaying on time or a bad debt crisis could potentially be lurking another worry is that with impaired balance sheets small and medium businesses may not get the loans they require in the future thats because potentially lenders may choose to lend only to the larger companies that have fared relatively better through the crisis or they may charge smaller businesses a higher premium for loans the financial sector was already struggling with bad debt before the pandemic hit so one of the key risks that i have is that exactly when we would want credit to pick up therell be a whole bunch of people and smes who cant get credit aziz said in its semiannual financial stability report published in january the rbi said it expects bad debt to rise to 135 by september almost doubling from the 75 seen a year ago if the situation worsens the nonperforming loans can rise to as much as 148 the central bank said