PremiumThe economic fallout of the second wave of the pandemic will remain restricted to the June quarter, although access to vaccines and revival in private consumption will determine the durability of India's economic recovery, Moody’s Investors Service said on Wednesday.
"Although contact-intensive sectors may continue to be hit harder than the rest of the economy, the economic damage from the second wave will likely remain restricted to the April-June quarter. We also expect the overall hit to India's economy to be softer than that during the first wave last year. However, the pace of recovery will be determined by (1) access to and delivery of vaccines, and (2) the strength of the recovery in private consumption, which could be hampered by the deterioration of balance sheets of low- and middle-income households from job, income and wealth losses," it said in a research note.
The rating agency expects Indian economy to grow at 9.6% in 2021 calendar year and at 7% in 2022. “The ongoing covid pandemic, restrictions and the associated economic losses pose a significant risk and add uncertainty to India’s growth forecast for 2021," it added.
Stringent lockdowns in economically significant states will mar April–June economic activity. The 10 states that have been hardest hit by the second wave collectively account for more than 60% of the pre-pandemic level of India's GDP. Four states – Maharashtra, Tamil Nadu, Uttar Pradesh and Karnataka – contributed the largest shares among all states in financial year 2019-20.
While infections are now falling, Moody’s said, vaccination progress will be the key to sustaining India's recovery. “India has ramped up its vaccination program, with all adults eligible for vaccination since May 1. But as of the third week in June, about 16% of the population had received one vaccine dose; of those, only about 3.6% had been fully vaccinated. Mobility and economic activity will likely accelerate in the second half of the year as the pace of vaccinations pick up. The government recently announced a strategy to centralize vaccine procurement in order to boost vaccinations, which if successful, will support the economic recovery," it added.
Crisil Ltd said on Tuesday said government should provide considerable policy support to minimize the impact of the ongoing second wave and the possible third wave on lives and livelihoods even as vaccination remains the safest bet for broad-based economic recovery in India.
“Besides increasing healthcare infrastructure spend, it is crucial to extend income and employment support to smaller firms, the rural economy, the services sector and the urban poor – the four segments most likely affected by the re-imposition and extension of restrictions. Rising medical expenses alongside dwindling incomes also added to the pain," the rating agency said in a report.
