Second Covid wave to hit economic recovery

A month-long nationwide lockdown can shave off 100-200 basis points off the GDP: BofA Securities

Mumbai: The spike in coronavirus cases poses a risk to economic recovery, and the GDP is unlikely to achieve the earlier projected 3 per cent growth for March quarter 2020-21, Wall Street brokerage Bank of America (BofA) Securities said on Friday.

Noting that a month-long nationwide lockdown can shave off 100-200 basis points off the GDP, the brokerage said growth is still weak, amplified by the steep fall in key economic activity indicators and the anaemic loan growth, and the surging pandemic cases is only increasing the worries on the growth front.

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However, the report by BofA Securities did not offer a likely GDP number for the March quarter 2020-21.

The seven-component BofA India activity indicator slowed to 1 per cent in February from 1.3 per cent in January, the report said, as 4 of the 7 constituents of the India activity index slowed in February over the previous month.

The report also pointed out that this poses risks to their 3 per cent real GVA growth forecast for the March quarter. The index had first time in 2020-21 turned positive in December 2020 after declining for nine straight months.   Spike in pandemic cases poses a rising risk to recovery. “We estimate that a month of national lockdown costs 100-200 bps of GDP,” the report warned.

The pandemic caseload in India has been surging hitting new records everyday for the past fortnight. The latest official number puts the daily infections at 2.17 lakh in the past 24 hours and 1,185 deaths– both are the highest in the world and more than the combined numbers of the second and the third most affected countries– Brazil and the US.

The report said it remains to be seen if the second wave subsides without a national lockdown and noted that Maharashtra, which contributes over 16 per cent of national GDP is already under lockdown till the end of the month as the state has more than half of the new cases.

Indian economy in better shape: CEA

The Indian economy is in a better shape as compared to the previous Covid-19 wave witnessed last year because of vaccines, chief economic adviser K V Subramanian said on Friday. Speaking at an event organised by e-commerce major Amazon, he said uncertainty is much lower this time but people should be cautious.

“There is a second wave therefore people should be careful about it and follow all regulations. But overall compared to previous episode, we are in a better shape because vaccine is out and vaccination drive is proceeding. So uncertainty is much lower,” he said.

Following the outbreak of Covid-19 pandemic in March 2020, India went in for one of the strictest lockdowns in the world, leading to a massive contraction of about 24 per cent in GDP. Beginning March this year, the second wave started rearing its head with a sudden jump in cases, forcing many states to go for localised restrictions to break the Covid-19 chain. India added a record 2,17,353 new coronavirus infections in a day, taking the total tally of Covid-19 cases to 1,42,91,917, while active cases surpassed the 15-lakh mark, according to the Union Health Ministry data updated on Friday.

This is the second consecutive day that the country has reported over two lakh cases. Subramanian further said “one key thing that stood out during this pandemic is the rollout of e-commerce and digitisation, something that India has embraced.” As many as 800 million people were provided essential supplies through the public distribution system and cash transfer through the Jan Dhan, Aadhaar, Mobile (JAM) in a seamless manner with a click of button, while most advanced countries like the US provided financial support to its citizens by issue of cheques implemented over 2 months, he added.

“I think Indian economy is really equipped very well to usher in the significant growth that is happening in e-commerce,” he said. He also suggested that MSMEs should embrace technology and invest in innovation for growth of their businesses.