Forecasts of a sharp double-digit economic rebound have not yet been put on ice, but the sharp spike in coronavirus cases in the country could cause serious economic disruption unless the second wave of the outbreak is contained at the earliest.
The optimism that India had scaled the Covid-19 peak last year and had left the worst behind is being replaced by a more cautious outlook as fresh daily infections crossed the 100,000 mark last week, forcing many states to impose localised lockdowns.
The Central government identified 11 states and Union Territories as “states of grave concern” because of their high and rising daily case numbers and death toll. These states and UTs – Maharashtra, Gujarat, Karnataka, Tamil Nadu, Delhi, Haryana, Punjab, Kerala, Chhattisgarh, Madhya Pradesh and Chandigarh -- account for 90 per cent of fresh cases and 90.5 per cent of deaths over the 14-day period ended March 31, 2021. They have also crossed or are close to crossing the peaks they had recorded last year.
Worryingly, six of these 11 states – Maharashtra, Gujarat, Karnataka, Tamil Nadu, Haryana and Delhi – are among India’s most industrialised and have a combined GDP of more than $1.5 trillion, or about 55 per cent of India’s GDP.
Maharashtra, India’s most industrialised state, said it would be forced to impose a complete lockdown if the situation did not improve very soon.
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The Central government identified 11 states and Union Territories as “states of grave concern” because of their high and rising daily case numbers and death toll.
These developments could raise a question mark over India’s robust economic recovery in the last couple of quarters and upend projections of strong double-digit growth in the current fiscal that was expected to negate the 8 per cent contraction in the economy in 2020-21.
That recovery had come on the back of proactive measures by the Modi government to contain the spread of the Covid-19 virus and several steps to get the economy back on the high growth trajectory.
However, on the positive side of the balance sheet is the fact that the Central and state governments and the Indian corporate sector can bank upon the experience gained from their handling of last year’s first wave outbreak and put in place measures to minimise the impact of the surge in cases.
Giving them confidence is the fact that localised lockdowns have not yet impacted or disrupted the supply chains of manufacturing companies, though they have already begun to hit consumer sentiment, as seen from reduced demand in the hospitality, aviation and brick-and-mortar retail sectors.
However, important sectors like steel, fast moving consumer goods and e-commerce have reported no let up in demand, even though industry captains, policy makers, analysts and common people remain wary about the impact of the second Covid wave.
Last Friday, India recorded 103,558 fresh Covid cases, the highest in the world – ahead of the US, which recorded 70,024 cases, and Brazil, which saw 69,662 new infections, according to the worlometers.info website, which tracks cases. This was the first instance since October when India topped the world in fresh Covid cases.
The seven-day rolling average of cases is considered a more reliable gauge of the intensity of Covid outbreak. Even by this metric, India, with nearly 69,000 cases, is second only to Brazil, which recorded 72,238 on Friday. Then, the number of cases jumped more than four-fold from 20,000 to 80,000 a day in just three weeks.
Maharashtra, which has a state GDP of $400 billion, accounts for about 15 per cent of goods and services produced in India. Its capital Mumbai is India’s financial capital and is home to the head offices of a disproportionately large number of domestic and international firms operating in the country.
What is causing concern is that the state alone accounted for almost 48,000 cases, or more than 50 per cent, recorded last Friday.
Maharashtra Chief Minister Uddhav Thackeray pointed to the possible shortage of adequate healthcare facilities if the Covid surge continued. “Today, I am giving indications of a complete lockdown, but I’m not imposing it yet. However, in the next two days, if I don’t see any change, then I will be speaking to experts. If I don’t get another option, then a lockdown will have to be imposed the way they have been imposed in the rest of the world,” he said, in a clear indication of the serious turn the second wave of Covid has taken in the country.
In sharp contrast to this, his Delhi counterpart Arvind Kejriwal ruled out a lockdown in the national capital even as daily cases surged to a shade less than 3,600 on Friday, the highest in 2021, and the positivity rate rose from 3.6 per cent earlier to 4.1 per cent.
On the brighter side, India’s ambitious vaccination drive continues to gather pace. Till the end of Friday, the country had vaccinated 73,054,295 people. Last Thursday and Friday, the rate of daily doses of vaccination crossed the three million mark for the first time since the vaccination drive began on January 16. On Friday, Day 77 of the programme, the figure stood at 3,093,795. It had touched a high of 3,671,242 doses on Thursday.
Six of these 11 states – Maharashtra, Gujarat, Karnataka, TN, Haryana and Delhi – are India’s most industrialised and have a combined GDP of $1.5 trillion, or 55% of India’s GDP.
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Experts said the country should target 5 million jabs every day. Though very ambitious, this goal is achievable and, if the figures for Thursday and Friday are anything to go by, could even be within reach. At this rate, India could immunise at least 75 per cent of its 1.36 billion population in less than six months.
The number of vaccinations is expected to rise significantly now that the government has done away with the mandatory need for online registrations, allowing anyone over the age of 45 to walk into any designated vaccination centre and receive a jab.
Indian industry remains way of the unfolding health and economic situation in the country. The memories of the lockdown last year are still fresh in everyone’s memory. The world’s most stringent lockdown, which helped India avert what could have been an epidemic of horrific proportions, took its toll on the economy, which contracted a record 24.1 per cent in the first quarter (April-June) of 2020-21 and 7.5 per cent in the second quarter (July-September) last fiscal.
But timely interventions and a slew of far-reaching reforms by the Modi government and the Reserve Bank of India (RBI) enabled the growth engines to rumble back to life from the third quarter onwards.
This year, the Indian economy is expected to grow at 10-14 per cent, according several international and national agencies such as the IMF, RBI, S&P’s and several private domestic and global brokerage firms.
But the spectre of a full-fledged shutdown in Maharashtra and, possibly, some other states as well is making industry very anxious.
Timely interventions and a slew of far reaching reforms by the Modi government and the RBI enabled the growth engines to rumble back to life from the third quarter onwards.
The worst affected could be the automobile sector, which is India’s largest manufacturing industry, accounting for almost 40 per cent of manufacturing GDP in the country.
The smart recovery in automobile sales had contributed significantly to the sharp rebound in India’s economic fortunes since the lockdown. However, dealers said the number of enquiries as well as bookings for entry-level two-wheelers as well as new cars have gone down considerably.
This will not have any immediate impact of sales as auto companies are sitting on waiting lists for many models that are three-to-10 months long. Industry analysts are hoping that the Covid storm will have passed by the time these order backlogs are exhausted.
The mood, then, is one of extreme caution. The rosy projections for the year have not yet been put on ice. The vaccination pace is picking up. The government is closely monitoring the situation. It will be fair to say that India’s economic prospects for the current fiscal are hanging in the balance.