To curb the spread of the virulent disease in the economy, lockdowns were imposed by the states in the months of April and May. According to the reports, it has likely led the economy to contract by 12% in the June quarter. It is to be noted that this is against 23.9% contraction in the same quarter in 2020.
Reportedly, the economy had its worst contraction on record in FY21 at 7.3%. This was during the 2.5 months of unplanned lockdown that was announced by the Centre with just a four-hour notice. This had emphatically crippled the economy in the first quarter with a massive 23.9% contraction. But subsequently, with easing of the lockdown, the economic health had improved to -17.5% in the second quarter.
With the festive season and pent-up demand in the economy, the economic numbers had indicated towards a sharp V-shaped recovery from the second half when it had posted a 40-bps positive growth and in Q4 clipping at 1.6%, containing the overall contraction at 7.3% for the year. It was in this quarter that India had ended its technical recession.
Swiss brokerage UBS Securities India maintained that this 12-percentage point contraction will have the economy missing a sharp V-shaped recovery this time around, unlike seen last year after the national lockdown was lifted. This is due to the low consumer sentiments this time around as people are more worried about the pandemic than last year.
UBS-India activity indicator, Tanvee Gupta Jain, the economist at the Swiss brokerage said that “The indicator suggests that economic activity has contracted an average of 12% in the June 2021 quarter as against 23.9% in June 2020 quarter.”
This is despite the indicator rebounded to 88.7 in the week to June 13, up 3% week-on-week after many states eased localized mobility restrictions from the last week of May.
However, the brokerage positively expects a sequential pick-up in economic activity from June. But it believes that the economy will gain traction only from the second half.
She stated that, “Unlike the V-shaped recovery in 2020, we expect the economy to have only a gradual recovery this time, as consumer sentiment remains weak on pandemic-related uncertainties. That said, we expect economic recovery to gain momentum from H2 as we see vaccination ramp up and the resultant control of the pandemic lifting consumer and business confidence from them”.
It is to be noted that in the second wave, lockdown lasted for slightly more than a month as against 2.5 months in the first wave. Additionally, industrial and construction activities too were allowed at a limited scale this time.
She added that, “We still expect only a sequential pick-up in economic activity from June and not a V-shaped recovery as in 2020”.
Significantly, there is positive momentum on the ground on the vaccination front which has improved to 3.2 million doses daily in the week to June 13 from 2.5 million as of end-May.