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Sunday, April 18, 2021

Covid-19 second wave: Lockdown scare haunts again, can Indian economy survive this time?

India Covid-19 second wave is like a déjà vu. The ghost of 2020 is still haunting India. Full lockdown, total closure of trade and commerce, tens of thousands of migrant workers scrambling to catch the last trains… none of these images faded when the pandemic’s second wave gripped India like never before. So, once again, we face the same big question…

India Covid-19 second wave: 2020’s lockdown scare still haunts; will the economy be hit again?

As the Covid-19 second wave rages across the country, we face one of the most vital concerns again – the economy. Will the Indian economy get another major blow like 2020? Will the GDP score in negative value (-) and millions of people lose jobs? Can the migrants change their fate this time? The questions are many, especially after Maharashtra declared “mini lockdown” on Sunday and many other states might follow the same path. Night curfew, weekend lockdown, and many such measures are on in the states with a sharp uptick of Corona cases.

We focus on 6 trends of the Indian economy to understand the situation of 2021 vis-a-vis 2020

1. Overall drop in mobility, a bad sign

According to the latest Google Mobility Report, mobility across retail and recreation places has dropped by 30% from February 14 to March 28, 2021, compared to the baseline. From January 30 to March 13, the figure was 22% below baseline. However, mobility to workplaces and within residential areas remained strong till March-end. Quite obviously, states with more Covid-19 cases have a sharper drop in such mobility. Maharashtra, Karnataka, Gujarat and Delhi fall in this category with mobility significantly below the national aggregate.

Another alert is the weekly Nomura India Business Resumption Index, which was running about 5 percentage points below normal, according to an April 1 report. Now that Maharashtra has announced a mini lockdown, restricting normal life and living, its impact will affect the entire country as the state accounts for about 14% of the country‘s GDP.

2. Services sector already getting another blow

The business has already started to slow down in the services sector. The most vulnerable sectors are hospitality and transportation services that account for about 5.7% of the GDP. Footfalls at the beginning of 2021 were around 70% of pre-covid levels. Now that has fallen by 40%, Kumar Rajagopalan, CEO of the Retailers Association of India, said in a report.

Like last year, uncertainty and volatility have already made people conscious about spending their hard-earned money once again. Though the impact is still limited to Maharashtra, states like Karnataka, Punjab and Delhi may also face the same scenario. Consumer spending has dropped by around 15% compared to what they were in January-February.

India Covid-19 second wave
Credit: Bloomberg Quint

3. GDP is still volatile, sharp growth very unlikely

Since the second wave intensified towards the end of March, an impact on January-March GDP growth is unlikely. Experts estimate that the economy will expand 1% year-on-year in the final quarter of the financial year. “However, if the second wave worsens further, causing more state-level restrictions and a moderation in contact services, then the sequential momentum in April-June quart will likely be close to zero or marginally negative as compared to the previous forecast of 0.5% on a quarterly basis,” the Nomura economists added.

The economy plunged into the negative zone, with the GDP contracting 23.9 per cent in the first quarter of 2020-21. Eventually, a staggered resumption of economic activity beginning June 2020 saw manufacturing pick up in the subsequent months but the services sector continued to struggle.

4. Job loss again in India Covid-19 second wave

According to the latest report, urban unemployment has risen yet again in March. On Sunday evening itself, several migrants were seen leaving Mumbai after the mini lockdown came into effect. They do not have jobs in the industrial areas anymore. Again, the pressure of growth is on the agriculture sector. It’s clear that the Covid-19 second wave has hit the job market once again.

The urban unemployment rate climbed to 7.24% in March, 25 basis points more than February, as per the monthly data of the Centre for Monitoring Indian Economy (CMIE). The already stretched female joblessness rate in urban areas climbed almost two percentage points to 19.07%.

5. RBI is still confident about recovery

Here are some hopeful trends. Things may not turn as they did last year. Reserve Bank of India (RBI) governor Shaktikanta Das, on March 25, expressed confidence that the second wave of the pandemic will not affect the ongoing economic recovery. He said that the economy would grow at 11 per cent as the central bank forecast for 2021-22. But industry experts feel the economy’s resilience will be tested by the severity of the Covid-19 second wave. Also, the condition of the economy is dependent upon the pace at which India vaccinates its population. India needs to vaccinate people from the 20-60 age group that constitutes most of the workforce. It has to be done fast.

India Covid-19 second wave
Credit: Live Mint

6. Covid-19 second wave may not affect goods sector

The daily electricity data is yet to suggest any slump in the economy. Power demand is robust and railway freight revenues are rising. It suggests that there is no impact on the industry, Nomura said. Even in Maharashtra, where the strictest lockdown has been imposed, manufacturing facilities are being allowed to function.

Consumer and trades have adapted to the new normal. As of now, lockdowns are likely to be localised and the goods sector will continue to recover. The process of vaccination is also gathering momentum. Nomura economists said the lagged impact of easy financial conditions, fiscal activism and strong global growth remain cyclical tailwinds. However, hospitality, food and beverage, tourism and much of the unorganized sectors will feel the heat of the pandemic’s second wave.

We hope the Centre and the states are better equipped this year. We have vaccines, necessary drugs and last year’s lessons to go forward from here on. The trade and commerce industry is already expecting government support. They ask for stimulus and waiver of property tax, waiver of power, water among other such tariffs.

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