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Last updated: 09 Apr, 2021  

India.Growth.9.Thmb.jpg India better prepared to handle resurgent Covid's economic fallout

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SME Times News Bureau | 09 Apr, 2021
India's economy is better prepared to handle any economic fallout emanating from the resurgence of Covid-19 cases, as the government, financial institutions and the industry have gained valuable experience of operating in the hard environment.

Accordingly, industry watchers have cited accelerated vaccination drive along with massive adoption of e-commerce by India Inc and low interest rates as factors which will mitigate the intensity of any economic shock.

In contrast, the localised lockdowns are expected at best to slow down the progress of economic recovery, but not stall it.

"Like the first wave, even the second wave of Covid-19 would adversely impact the GDP growth and the process of the ongoing economic recovery," Sunil Kumar Sinha, Principal Economist, India Ratings & Research, told IANS.

"However, despite localised lockdowns being witnessed in different parts of the country, its impact will be minimal because economic agents by now have not only learnt to live with it, but they have also learnt to navigate through it," Sinha said.

Lately, India has seen a sharp resurgence of the pandemic that has led to the re-imposition of containment measures and limited lockdowns in some of the impacted states such as Maharashtra, Punjab, Delhi and Chhattisgarh.

According to a Crisil note, from March 29 to April 4, daily cases shot up from 68,000 to over 1 lakh -- marking a whopping 52 per cent increase.

The country is expected to clock a GDP growth rate of around 26.2 per cent in Q1FY22.

"Lead indicators are pointing to a mild sequential moderation in activity," said Madhavi Arora, Lead Economist, Emkay Global Financial Services.

"While it is too early to gauge the impact of the second wave on macro variables, we believe that the impact is unlikely to be of the same magnitude as last year, as a segment of the economy has already adapted to the new post-Covid normal, while the vaccination drive continues its traction, revenue spending trends are much better, financial conditions are more stable, and global growth, led by the US, will have spillovers," she added.

According to ICRA's Principal Economist Aditi Nayar: "The baseline expectation is that the government and corporates are better prepared to handle this wave of the pandemic. Nevertheless, the extent to which the restrictions need to be reimposed will have a bearing on the tempering of the growth recovery."

However, contact intensive services, including retail, transport and hospitality, which were expected to stage a healthy recovery in FY22, will face a heavy brunt from the resurgence.

"All contact intensive sectors, namely retail, entertainment, transport and hospitality, will be severely impacted by the fresh imposition of containment measures," said Suman Chowdhury, Chief Analytical Officer at Acuite Ratings and Research.

"These sectors had been in stress for a larger part of FY21 and the recent developments will aggravate the stress levels further, at least for the next 2-3 months. The NBFC sector, including the microfinance segment, is also likely to be hit in some states in terms of collection and disbursement levels," Chowdhury added.

Besides, the government has exuded confidence over the sustenance of the recovery cycle.

In its latest monthly economic review, the Department of Economic Affairs (DEA) said: "Despite the surge in cases, the recovery in the economy is resilient with sustained improvement in majority of high frequency indicators."

It said that the agriculture sector continues to remain the bright spot of Indian economy with foodgrains production touching 303.3 million tonnes in 2020-21, beating the record production levels for the fifth consecutive year.

On the health front too, the department said that India is well prepared to combat the scourge of the virus.

"India is well-equipped with adequate testing and health infrastructure and economic activities have adapted to the pandemic. This prospect is, further, bolstered by the fast roll-out of vaccination," the DEA said.

RBI Governor Shaktikanta Das although on Wednesday said that juxtaposition of high frequency lead and coincident indicators reveal that economic activity is normalising in spite of the surge in the number of Covid cases, but added that the recent surge adds uncertainty to the domestic growth outlook amid tightening of restrictions by some state governments.

Despite the concerns, Das sounded optimistic and was of the view that fiscal and monetary authorities stand ready to act in a coordinated manner to limit its spillovers to the economy at large and contain its fallout on the ongoing recovery process.
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