Economic scars may outlive lockdowns

The surging tide of those infected by the coronavirus may have slowed down in states that were the worst affected by the second wave, but the economic scars left by the pandemic may persist longer, and so will India’s struggle to return to pre-pandemic levels of output, economists warned.

Maharashtra, Chhattisgarh, Delhi, and Uttar Pradesh are among major states seeing a decline in test positivity rates since mid-April. In almost all other badly hit states, the increase in positivity rate is marginal, except in Karnataka and Kerala. The total number of reported cases has also plateaued at less than 350,000 a day, government data showed. That’s still more than three times the highest daily infections reported during the first wave.

In the second wave, most worst-hit states appear to be nearing a peak in their infection curves within a month after cases started to surge in late March. In comparison, the first wave peaked almost six months after it began.

The early signs of improvement follow strict lockdown-like curbs in most states in the past two weeks. States acted after the Centre, wary of the economic fallout, resisted calls for a national-level lockdown.

But “new sources of uncertainty”—such as indefinite lockdown durations and weak consumer sentiment among affluent Indians—make the second wave different from the first, and some of these economic costs could “outlive the duration of local lockdowns”, said a 13 May note by Pranjul Bhandari, Aayushi Chaudhary, and Priya Mehrishi of HSBC Global Research.

While lockdowns will drag economic output this quarter, the final GDP print may still look high due to a low base. The uncertainties, however, could temper the rebound in July-September compared with the sharp post-lockdown bounceback in 2020, the note said.

“The pattern of last year’s GDP trajectory was different; it was a sharp fall due to the very strong national lockdown and then a reasonably strong recovery. But this time, uncertainties are very large, the pandemic is still there, we don’t know much about the new variants, and one doesn’t know if it’s a peak or a plateau for a while,” said Shankar Acharya, a former chief economic adviser to the government.

Acharya said state lockdowns were “widespread, varied and temporary”, making it harder to estimate the GDP loss. He projected a 5-10% drop in real GDP in the June quarter from the preceding three months.

The HSBC Global Research note expects GDP to return to pre-pandemic levels by the year-end, predicting that infections among more affluent Indians could keep pent-up consumption demand subdued in the recovery phase. The rural spread of the second wave could disturb the chances of any recovery push coming from the countryside as well, experts say. The impact of poor health facilities could affect the summer crop harvest, too, Acharya said.

India’s economic output slumped 24.4% in the June quarter last year because of a strict nationwide lockdown. As the economy opened up, a sharp recovery helped India grow 22% on quarter, limiting the annual GDP loss in the September quarter to 7.3%. The recovery path since then has been disrupted by the devastating second wave since March.