As the re-emergence of Covid-19 cases has turned financial markets nervous, it would be a lie to state that experts, economists and brokerages are equally worried this time around. While the partial lockdowns in states may indeed slow down the recovery for Covid-battered sectors and delay a full-blown economic recovery, analysts say things are unlikely to become worse or too bad, and the nation should be able to deal with it much easily and with better preparedness.
Recently, the daily covid cases have been breaching all highs since last week. It is to be noted that India has been recording on average around 1.68 lakh cases daily which has led various states like Maharashtra and Bihar to place partial lockdowns in specific sectors like leisure, food, beverage and hospitality.
This comes after six months, when India managed to contain the first wave of the Covid-19 pandemic in the country. This time, however, the coronavirus cases are rising much rapidly than earlier. Thus, the new wave of Covid 19 could inflict a major blow to the Indian economy’s prospects.
India had started to get back on its feet, when the virus made a nastier and more diabolical comeback in India. The earlier turnaround by the Indian economy was seen by many agencies as phenomenal and exceptional, but the same cannot be stated at the current moment, so much so that it has led various rating agencies to scale down their growth projections for India’s economic growth. This is due to the fact that several economists and experts had predicted a quick economic turnaround for the country, however, these estimates had not taken into account the possibility of a fresh pandemic wave.
Thus, this grossly understated risk now has the potential to severely damage small businesses that are still recovering from the impact of the last year’s lockdown. It is to be noted that last year’s lockdown had such a crippling effect on the economy that the economy had contracted by an unprecedented 23.4%, hitting the hospitality, aviation, manufacturing and the construction sector the worst.
In its March report, ICRA stated that “Uncertainty related to the near-term outlook has risen considerably, following the spate of new Covid-19 infections, which have necessitated localized restrictions,”.
Fresh partial lockdowns
Maharashtra, the commercial capital of India, is in present circumstances in troubled waters as it has been contributing around 60% of the case load in national covid count. The western state that contributes around 15% to India’s GDP is the financial capital of India. A recent report by Care ratings has stated that Maharashtra lockdown has a potential to cost India’s economic growth Rs. 40K crores. According to the report, trade, hotels and transport sector are the sectors to bear the biggest brunt.
Additionally it was also reported that the loss of economic activity will have a 0.32% impact on the gross value added (GVA) growth at the overall domestic economic level.
Hospitality and small-scale business in the urban areas, according to reports, have already started facing losses after Maharashtra and some other important states imposed localized curbs. It is worth mentioning that most of these businesses are yet to recover from the initial impact of the Covid-19 pandemic and may have to permanently shut shop if the situation worsens.
Other states such as Punjab, Kerala, Karnataka, Chhattisgarh and Gujarat are also reportedly witnessing a sharp rise in cases, leading to the imposition of restrictions at the local level.
ICRA in its report stated that “If this trend proliferates, it would temper the extent of the base effect-led recovery that is anticipated in the immediate term, and may reignite supply-side disruptions,”.
The full-fledged ongoing vaccine drive has improved consumer and producer sentiments in India, however, the programme is currently limited to those above the age of 45 years which is detestably bypassing younger adults who make up a large part of the workforce and drive aggregate demand in the economy. ICRA stated that “In our view, uncertainty regarding the economic outlook will persist over the next few months, until the vaccines become available in India for all adults,” .
Worryingly, not only has the resurgence detestably overwhelmed the healthcare system but has also cast a fresh shadow over the nascent economic recovery which still stands on shaky grounds.
Although if we take into consideration the advice of the experts, authorities suggest that India is well acquainted and prepared to deal with the second wave of the pandemic, but the situation demands robust vaccination drive and stringent pandemic behavior.
If the Covid-19 situation worsens further, states will have no choice but to impose stringent complete lockdowns.
WEAK INDUSTRIAL GROWTH
As it has been reported, India’s manufacturing activity grew at its weakest pace in seven months in March. It was reported that the PMI had declined to 55.4 in March from February’s 57.5, but had managed to remain above the 50 mark.
India’s manufacturing activity had weakened to a seven-month low in March, according to the Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit. Further, the Index of Industrial Production (IIP) contracted 3.6 per cent in February, and contracted further in March due to imposition of lockdowns in Maharashtra.
According to experts, weakening of industrial activity is not a positive sign for the economy which is at a nascent recovery stage. Thus it can be inferred, that dwindling industrial production is a clear sign of a slowdown in key economic activity across various sectors. To make matters worse, the retail inflation also grew from 5.03% in February to 5.52% in March. As Moody’s analyst had already predicted India’s retail inflation at an “uncomfortably high” level.
It is to be noted that rising CPI had an adverse impact on the prices in the economy which led to demand contraction. The surge in CPI was recorded due to the rise in the fuel prices in the economy as the demand for oil grew by 1.22% in march.
LOW CONSUMER CONFIDENCE
To state that Consumer confidence has taken a massive hit is an understatement. A recent survey conducted by the Reserve Bank of India (RBI) singled a sharp drop in Consumer confidence due to immediate resurgence of virus in the economy.
This emphatically shows that consumers will now be reluctant to make non-essential purchase which will have an adverse impact on the non-essential sector in the market. This has the potential to impact sectors like real estate, automobile, consumer durables and other luxury goods.
RISING UNEMPLOYMENT
It is to be noted that India in the pre pandemic period was already facing highest unemployment in 45 years. When the pandemic struck, the unemployment woes of India were exacerbated and the unemployment rate has been ever rising.
A report by Mumbai-based think tank Centre for Monitoring India Economy (CMIE) indicates that the unemployment rate touched 8.6 per cent for the week ending April 11, from just 6.7 per cent two weeks ago.
The urban sector was worst hit as migrant laborers returned to their native villages. This led to unemployment rate in urban area reaching to a detestable 10 per cent.