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Economic impact of second wave softer, may be limited to June quarter

Moody's Analytics

According to Moody’s Investors Service the economic fallout from the second wave of the pandemic will remain restricted to the June quarter. According to the analysis, this will be due to the greater access to vaccines and revival in private consumption which will determine the durability of India’s economic recovery.

Moody’s Investors Services in a research note stated that “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.”. It further added that, “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,”.

The Moody’s rating agency positively expects Indian economy to grow at 9.6% in the financial year 2021. Additionally, it expects Indian economy to grow at 7% in 2022. It stated that “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 is to be noted that stringent lockdowns that were placed in the economic significant states of India are the reason that India will see economic fallout in April–June economic quarter. According to the reports, the 10 states that had been hardest hit by the second wave collectively account for more than 60% of the pre-pandemic level of India’s GDP. Four states namely Tamil Nadu, Maharashtra, Uttar Pradesh and Karnataka emphatically contributed to the largest shares among all states in financial year 2019-20.

As aforementioned, a robust vaccination drive in the economy will lead the economy out of its economic troubled waters. With daily infections falling continuously and India ramping up its vaccination drive, recovery doesn’t quite feel like a farfetched dream anymore. Moody’s stated that “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,”.

On the other hand, on Tuesday, Crisil Ltd had stated that the 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.

The rating agency had stated in its report that “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,”.

About the author

Shivani Khanna

A woman who believes in equal rights and aspires to inspire people through her writings. I aspire to contribute to the economic world and society with diligence and thus being an economic advisor tops my career ambitions . I currently am pursuing Economic honours ( at undergrad level) from delhi university.

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