Download The App

Second wave of Covid-19 pandemic may derail India's economic recovery

The ongoing mobility curbs coupled with fears of extension of curfews and lockdowns have compelled economists to downgrade their GDP forecast for the Asia's third largest economy

With states now easing restrictions, economic activity in May is likely to signify the trough

Leading brokerages have downgraded India’s GDP growth projection for the current fiscal year, after taking into account the potential impact of the second wave of the pandemic. With daily Covid-19 tally breaching 4 lakh mark twice during the last few days, India has become one of the worst hit countries. Due to the steady spike, strict lockdowns have been imposed in several parts of the country to curb the spread of the virus.
The active Covid-19 caseload of the country has been hitting fresh highs everyday since the past fortnight. The ongoing mobility curbs coupled with fears of extension of curfews and lockdowns have compelled economists to downgrade their GDP forecast for the Asia’s third largest economy.
As many as 20 states in India have imposed lockdowns, which experts see as a mini nation-wide lockdown. There are increasing discussions on how this will  impact consumption in the near future.

US-based rating agency, S&P Global Ratings on Wednesday slashed India’s GDP growth forecast for FY22 to 9.8% saying the second wave may derail the budding recovery. In contrast, S&P in March had pegged India’s GDP growth at 11%. S&P in its latest report said, “India’s second wave has prompted us to reconsider our forecast”. It also mentioned that the depth of Indian economy’s deceleration will determine the hit on its sovereign credit profile.

Goldman Sachs too has lowered its estimate for India’s economic growth to 11.1% for FY22. In its latest report this week, Goldman Sachs mentioned, “The intensity of the lockdown remains lower than last year. Still, the impact of tighter containment policy is visible in higher frequency mobility data across key India cities, particularly on the services side has taken a hit.

Barclays Securities has cut India’s GDP growth forecast for financial year 2021-22 to 10% year-on-year from 11% earlier. The brokerage house is of the view that if Indian states continue with COVID-19 related restrictions till August 2021, it could result in a downside of 120 basis points on annual real GDP growth, dragging FY2021-22 growth to 8.8% YoY.

Last month, brokerage houses Nomura, JP Morgan and IHS Markit too had slashed their GDP forecasts for India ranging between 9.6% and 12%.

Not just global brokerage houses, now government officials too have begun to spell out concerns on the impact of the second wave on the economy.

Union Finance Minister Nirmala Sitharaman, on May 5, shared a cautionary outlook on the economy on the back of the second wave, by saying ‘the resurgence of the pandemic has adversely impacted the nascent recovery process in India’.

The minister however maintained that India will sail through the storm with the focus of the government on robust public health measures, timely treatment of infected persons, sound macro-economic management, and strong macro fundamentals. The moot question is – will the second wave have a bigger impact on the economy in comparison to the first wave?

Published: May 6, 2021, 18:36 IST

Related News

Exit mobile version