From Shock to Strategy: Post-Pandemic Lessons on Household Financial Adaptation in India

This study leverages real-time panel data capturing the incidence of COVID-19-induced lockdowns in India over two years to analyze the effects on household financial decisions. Our findings unveil distinct impacts on consumption patterns, savings, and borrowing behaviors among households, particularly in districts witnessing higher inward labor migration. Notably, our analysis confirms the theoretical premise of the standard economic consumption smoothing model, observing the most pronounced effects in the short to medium term following the income shock due to the lockdown. This effect is notably significant amongst households with relatively limited access to financial markets, contributing to partial consumption smoothing mechanisms such as readjustment in consumption patterns and borrowings from limited sources. Furthermore, our study highlights a notable decline in household expenditures on education and health, signifying the nuanced impact of income shocks on household developmental outcomes. JEL codes: D14, E21, G51, G18