Second covid wave may dent country’s economic recovery

The second surge in coronavirus infections and proliferating localized lockdowns could dampen the prospects of a sharp economic rebound in FY22 from a record contraction last year, experts warned as Prime Minister Narendra Modi chaired a high-level meeting on Sunday to take stock of the pandemic situation.

The review meeting on the covid pandemic chaired by Modi highlighted that there is an alarming rate of growth of covid-19 cases in the country with 10 states contributing to more than 91% of the cases and deaths.

Global institutions and rating agencies have forecast a sharp economic rebound for India in FY22 from a record contraction last year

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Global institutions and rating agencies have forecast a sharp economic rebound for India in FY22 from a record contraction last year

Former chief statistician of India Pronab Sen said recovery is going to be slow, with or without lockdowns, across states as contact-intensive services will be impacted by the surge in covid-19 cases.

“Most of the estimates made for this year assume services to go back to the pre-pandemic level. That is unlikely to happen now. The fear factor will come back to hit both consumer sentiment and the willingness of owners to engage in contact-sensitive services,” he said.

However, Sen said the bigger issue is what happens to manufacturing.

“Much will depend on whether state governments impose lockdowns or not. If one of the supply chains is broken, it can be very disruptive,” Sen said.

Maharashtra, which has the highest caseload, imposed a partial lockdown starting Monday along with a night curfew. While malls, bars and hotels have been asked to shut shop, restaurants and other eateries will be open only for takeaways and parcels. However, flights, trains and buses will function normally. Chief minister Uddhav Thackeray has warned of a possible statewide lockdown if the situation does not ease in a couple of days.

Karnataka has also capped capacity in pubs, bars, clubs and restaurants to 50% in some districts, including Bengaluru Urban and Rural.

Chhattisgarh has announced a complete lockdown in Durg district for nine days starting Tuesday in an attempt to break the chain of transmission of the infection.

Imposition of statewide lockdowns in key economic centres such as Maharashtra, Karnataka, Tamil Nadu and Gujarat, which contribute the most to economic activity, will impact the overall economic growth prospects of the country, according to Devendra Kumar Pant, chief economist at India Ratings.

“A lot will depend on the ramping up of vaccination, which will improve sentiment. Ultimately, growth in this fiscal will be more driven by the base effect,” he said.

According to Union health ministry data, the number of covid-19 vaccine doses administered so far has almost touched 76 million.

Shubhada Rao, founder of QuantEco Research, said while a better-than- anticipated progress has been made on the vaccine front, the growth recovery for FY22 looks a bit “disturbed” as localized lockdowns add an element of choppiness to business activity, especially services, many of which had resumed operations not too long ago.

“The possibility and extent of downward revision in growth will hinge on how soon the second wave of the virus peaks and more so the pace of trade-off between the virus and mobility,” she said.

The World Bank had last week projected a wide range of 7.5-12.5% for India’s economic growth in FY22, highlighting uncertainty about the second wave of coronavirus infections, the trajectory of the vaccination drive and its impact on the contact-intensive sectors in the economy.

Fitch Ratings upgraded India’s growth projection for FY22 to 12.8%.

The International Monetary Fund will announce its forecast on Tuesday.

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