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The resurgent pandemic may deal a blow to India’s growth prospects, with economists saying the double-digit growth forecasts for this year, mainly because of a favourable base effect, no longer look certain.

With more states imposing lockdowns to stop new infections from overwhelming the strained healthcare system and a faltering vaccination programme, economists expect severe downside risks to their FY22 growth estimates.

Economic activity picked up pace in recent months after the country plunged into its deepest recession in more than 40 years, but complacency about the virus and misplaced euphoria about vaccines are threatening the hard-fought gains. With all restrictions on mass gatherings lifted by the government, people have congregated in massive numbers without protection at religious festivals, political rallies and marriages, fuelling the more severe second wave of infections.

The World Bank now expects the Indian economy to grow within a broad range of 7.5% to 12.5% this year, underlining the uncertainty about the nation’s growth prospects.

The adverse impact of the crisis is likely to be concentrated in the three months to 30 June, said D.K. Srivastava, chief policy adviser at EY India. By that time, Srivastava expects the pace of vaccination to overtake the pace at which infections are spreading, reducing its severity.

With more states imposing lockdowns to stop new infections from overwhelming the strained healthcare system and a faltering vaccination programme, economists expect severe downside risks to their FY22 growth estimates.
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With more states imposing lockdowns to stop new infections from overwhelming the strained healthcare system and a faltering vaccination programme, economists expect severe downside risks to their FY22 growth estimates.

“In the first quarter, a large base effect was expected with a projected growth rate of above 20%. This may have to be revised downwards. This may actually have to be reduced by one percentage point from the estimated 10.5% by RBI for FY22," he added.

India has administered 117 million vaccine doses until 15 April, the most after the US and China, but in the context of its billion-plus population, the number is nearly not enough.

With many states facing a shortage of vaccines, the government has cleared imports of Russia’s Sputnik V vaccine and has agreed to fast-track vaccine approvals to speed up inoculations in the country.

D.K. Joshi, chief economist at Crisil Ltd, said the second wave poses a clear threat to the double-digit growth estimates for FY22. “At present, our estimate is 11% growth, and there is a downside risk. We will wait for more information to assess the quantum of the impact. It is an uncertain environment, and quantifying the impact is difficult at present," he added.

India recorded the fastest 1 million cases in a matter of a mere six days, moving from 13 million to 14 million, with daily infections exceeding 200,000 for the second day on Thursday. Maharashtra, Delhi, Punjab and Karnataka are bearing the brunt of the pandemic and are already falling short of health infrastructure and equipment ranging from oxygen to ventilators.

Kunal Kundu, India economist at Societe Generale, said he had pegged the growth rate at 9.5% for FY22 before the second wave, given how the virus had come back with a vengeance in many parts of the world. “Currently, we are comfortable with the existing forecast, but the extent of the surge has taken us by surprise," he said.

Fitch Solutions on Friday said despite several healthcare reforms, India remains badly placed to tackle the rapid spread of the virus. “The continued lack of medical funding and healthcare infrastructure inform our view for the potential epidemic to be worse in India if it is not adequately contained. With 8.5 hospital beds per 10,000 population and eight physicians per 10,000, the country’s healthcare sector is not equipped for such a crisis," it added.

“Maharashtra-style localized lockdowns may become inevitable for many states. Add to that reports about vaccine shortage, and the situation appears grim. What this would mean is that opening up might take longer, and the road to real recovery might stretch further," he added.

Aditi Nayar, chief economist at ICRA Ratings, said there may be some loss of demand in the first half of FY22, especially in the contact-intensive sectors, and some shifting of demand from the first half to the second half of FY22. “We now expect Indian GDP to grow 10-10.5% in FY22 from 10-11% earlier. The key downside risks to our forecast is a continuation of this wave of infections and an extension of the restrictions imposed so far," she added.

To be sure, some economists are holding on to their growth projections above 10%, waiting for more details, before they revise their estimates. Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, said he is not revising the 11% growth projection as of now. “The slowdown in Maharashtra’s economy may dent certain sectors more... We believe sectors including electricity, vehicles and transport, electronic and home appliances would be the worst affected," he added.

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