• News
  • Columns
  • Interviews
  • BW Communities
  • Events
  • BW TV
  • Subscribe to Print
  • Editorial Calendar 19-20
BW Businessworld

COVID 2nd Wave: The Double whammy That India's Economy Will Face

Many States have declared lockdown, and reports recommend numerous states are probably going to present more rules and regulations and could declare lockdowns in the coming days.

Photo Credit :

India has touched all-time high confirmed COVID-19 cases in a few days and expected to see a peak in the coming months.  Now, it’s a double whammy for the country as India is dealing with its impact on the economy and healthcare sector.

Many States have declared lockdown, and reports recommend numerous states are probably going to present more rules and regulations and could declare lockdowns in the coming days.

PRP Strategies stated "India’s GDP went down by 24.4% in the quarter ending June 2020 and according to second advance estimates, FY 20-21 is expected to suffer a GDP contraction of 7.96%. Coming to FY 22, 1st quarter is expected to be the worst affected quarter because the second wave will be the one ending in June 2021 as, unlike the first wave, we have vaccines this time, it is reasonable to expect that the pace of new infections will slow down as vaccinations pick up.    "

 According to many media reports, the second wave is much stronger than the first wave but the economic impact is not that pronounced, because people have learned to live with the virus and work their way around it. There is not as much fear as during the first wave. And the experience of the US and Europe who have already had the second wave tells us that particularly the manufacturing sector is reasonably well placed to weather the second wave and the worry is more for services like tourism, restaurants or hospitality.

As Work from Home continues the demand for commercial real estate is expected to be subdued through 2021- 22 as well. So, in terms of the overall growth, the impact will be much less pronounced than the first wave but the inequalities in the system could continue because the segments which were hurt earlier are going to be hurt again this time around. 

As per reports, We are witnessing both GOI & RBI rising to the occasion to stimulate growth. In spite of small cut to 1st quarter growth rate, overall growth for FY 21-22 shall be higher than RBI’s forecast of 10.5%. 

According to PRP Strategies, To date, cases are largely concentrated in few states. Maharashtra, Kerala, Karnataka & Uttar Pradesh account for 50% of all active cases in India. While the rise in cases does pose a challenge with respect to disruption of economic activity, the lockdowns so far have been localized. The likelihood of a pan-India lockdown remains low but has not been ruled out as the mortality rate in the current wave is 0.5-0.7% vs 1.5-2.0% in the previous one. Across India, Google Mobility for the Workplace was 19% below baseline for the week ended 11 April 2021 versus a 12.8% dip in March 2021 and an average of 15% below baseline over January-February 2021. At an all-India level, work place mobility declined 3.5% MoM in the early days of April 2021 versus March 2021 levels and further restrictions may decline the rate of Mobility further.   

They added, "Let us recognize that there is still emerging short term uncertainty, downside risk & frequent changes in the economic outlook and how fast the second wave cools off depends upon how effectively the vaccines roll out. Sectors like Pharma and IT will again come back as preferred investment options. One more factor can help the economy grow is that the IMD has forecast a normal monsoon for this year, implying that agriculture growth will be robust. Corporate Results for March Quarter also confirm a positive outlook for commodities. Markets were jittery when yields on US 10-year treasuries went up sharply to 1.73%. However, subsequently yields have cooled down meaningfully.

As per Fitch “second wave of virus, cases may delay the recovery, but it is unlikely in Fitch's view to derail it” as they still forecast a 12.8 % GDP growth in FY22 after a likely correction of 7.5% last year. Also, the global experiences show that the subsequent waves are less disruptive for the economy with only some contact-heavy services recording a sharp pull-back activity and data shows that advanced and developing economies remain resilient to second wave shocks. 

So, to be fair, once the second wave subsides and a larger proportion of the population is vaccinated, pent-up services demand could push GDP growth back up. Like every other pandemic, this too shall pass, but not without exacting its toll.