Covid-19: Does A Second Wave Pose A Threat To Economic Growth? 
Motorists travel along a road in Mumbai, India, on Saturday, Feb 6, 2021. Photographer: Dhiraj Singh/Bloomberg

Covid-19: Does A Second Wave Pose A Threat To Economic Growth? 

A second wave of Covid-19 cases poses fresh risks but it may not unbalance India’s economic recovery.

On Wednesday over 28,000 fresh cases of the virus were reported, the biggest single-day spike in over three months. Maharashtra continued to lead the surge with some parts of the state reinforcing localised lockdowns to control the spread. Kerala, Chhattisgarh, Gujarat, Punjab, Tamil Nadu and Karnataka too reported a high number of active cases, according to data from the ministry of health and family welfare.

With new confirmed Covid-19 cases spreading to states outside Maharashtra, the risk of a second wave in India has risen materially, said a research note by Nomura dated March 17, 2021. While the rise in cases poses a near-term risk, medium-term implications remain limited, the note said.

We believe this can lead to near-term growth concerns and delay market expectations on the timing of policy normalisation. However, we expect only marginal negative growth effects, because government restrictions are less stringent, the goods sector continues to chug along and households and businesses have adjusted to the new normal.
Sonal Varma and Aurodeep Nandi, India Economists, Nomura

Over the medium-term, progress on vaccinations, stronger global growth and lagged effects of easier financial conditions are likely to will act as growth tailwind, Nomura added.

However, if cases continue to rise in the coming weeks, authorities may announce stricter guidelines and possible localised lockdowns, said Kaushik Das, the chief economist at Deutsche Bank. The impact of this will be felt largely during the April- June 2021 quarter.

Anticipating such a possible uptick in Covid-19 cases, Das estimates GDP growth as well to be relatively lower at 25.5% for the quarter, compared to an estimate of 26.2% estimated by the RBI.

Maharashtra Remains Key Concern

Maharashtra accounted for about 60% of all active cases in the country, followed by Kerala that reported about 11% of all active cases.

If new cases continue to rise exponentially in Maharashtra, the state authorities may become compelled to announce a lockdown for two weeks, though such a decision will be taken as a last resort, said Das. Maharashtra contributes 14.5% to India’s overall GDP, which is significantly higher than the other worst-affected states, he added.

While Nagpur in Maharashtra entered a seven-day ‘complete’ lockdown from 15 March, partial lockdown measures were already in place for a number of districts in the state. Contact intensive services such as hotels, restaurants, cinemas and multiplexes are permitted to operate at only 50% capacity, and shopping malls need to implement strict protocols.

Google Mobility data for the retail and recreation category, available until March 12, has moderated somewhat in the case of Maharashtra even as it remains relatively unscathed for other key states, according to an analysis by Nomura. However, a clearer picture may emerge in the coming weeks as states implement restrictions and individuals respond to rising cases, Nomura said.

Vaccine Pivot

India has so far inoculated about 2.3% of its population, Nomura said, presently targeting senior citizens and people aged above 45 with co-morbidities. At this rate, India will inoculate close to 30% of the population by the end-2021, Nomura estimates.

However, there are three factors that may help India achieve its vaccine pivot point much earlier, it added.

Serological studies suggest that some portion of the population has already been exposed. A number of new vaccines have been reported to be on the anvil and lastly, as private hospitals become involved, the pace of vaccinations should also pick up.

Hence, while rising virus cases are a risk to near-term activity, this should become less of a threat over the coming quarters, Nomura said.

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