Virendra Pandit
New Delhi: With the second wave of Covid-19 intensifying since mid-March—which may continue to infect millions until June—the V-shaped recovery of the Indian economy expected in January 2021 is no longer possible and experts believe that the recovery, if any, would resume only in the second quarter of the current financial year (Q2FY22).
In early March, Union Health Minister Dr. Harsh Vardhan had declared that India was “in the endgame” of the Covid-19 pandemic. Later that month, however, the second wave began to rise as crowded sports events returned, election rallies started, marriage season resumed, and religious functions like the Haridwar Mahakumbh, and the Ramadan month, began. Amid the vaccination drive, the people threw to the wind all precautions and protocols they followed last year.
Although the International Monetary Fund (IMF) has still projected a rosy picture of ‘double-digit growth’, other experts have downgraded their earlier estimates as the real growth of GDP may turn out much lower than projected before.
According to medical professionals, the second wave could last for around 12 weeks (until mid-June). The Indian economy could also suffer for an equal duration, indicating that recovery will slow down in the first quarter of the current fiscal year (2020-21), media reported on Monday.
Similar indications came also from the investors’ sentiments. On Monday itself, Sensex fell by more than 1,000 points.
Brokerage houses have sensed the challenges ahead and lowered India’s GDP projections. For instance, Nomura downgraded its GDP growth projection from 13.5 percent to 12.6 percent, JP Morgan from 13 to 11 percent, and UBS from 11.5 percent to 10 percent.
“India is in the midst of a resurgence of Covid-19 cases, with the daily case count two times the 2020 peak. If the efforts to get the virus under control are successful over the coming weeks, we think recovery should gather steam from Q2 FY22 onward,” a UBS spokesman said, according to media reports.
The Swiss multinational investment bank and financial services company expected the mobility restrictions in India to continue until at least May-end and that normal economic activity could return by June-end.
It suggested that the economic impact “will be much lower” than in 2020, and said India’s real GDP could slow down by a much larger magnitude if disruptions last longer.
By all indications, the second wave has cut short India’s economic recovery as it has forced many states to impose localized lockdowns. Numerous businesses have been negatively impacted and experts say the situation will worsen if the virus is not contained soon.
Due to the nationwide lockdown and restrictions during the first wave of the pandemic, businesses were hit hard as economic activity had come to a complete standstill. While no nationwide lockdown has been imposed yet, the local restrictions are hurting businesses as much. Also, these businesses are no longer in a position, in terms of revenue and cash reserves they had earlier, to sustain and outgrow the pandemic whose second wave has caught them by surprise.
These businesses simply do not have the means to sustain another period of prolonged restrictions. The second wave has already stressed sectors like tourism, hospitality, restaurant, aviation, entertainment, automobile, real estate, and construction, which, when combined, contribute to a bulk of India’s GDP.