India’s economy likely accelerated in Jan-Mar, before covid 19 second wave

According to reports, India’s economic growth had likely picked up in the quarter of January-March from the previous three months. But economists have grown more pessimistic about the current quarter after a harsh second wave of Covid-19 had hit the country last month.

According to the median forecast from a Reuters survey of 29 economists, gross domestic product (GDP) in Asia’s third-largest economy, India, grew by 1 per cent in the March quarter from a year earlier. This was up from 0.4 per cent growth in the previous quarter when India had begun pulling out of a steep pandemic-induced recession. The Indian economy was out of a technical recession after two consecutive quarters of de-growth as the GDP expanded by 0.4 per cent in December quarter 2020 as against a contraction of 7.3 per cent in the September quarter.

It is no news that recently the second wave of infections and deaths across the world’s second-hardest hit country has caused various forecasters to trim their optimistic projections for the coming months.

It is to be noted that the median forecast for the months of April-June growth has been trimmed to 21.6 per cent which is down from a month-earlier estimate of 23 per cent. This comes after the resurgence in covid positive cases that had prompted most industrial states to impose stringent lockdowns, throwing millions out of work. Additionally, economists have cut their median forecast to 9.8 per cent from 10.4 per cent, for the fiscal year 2022.

India is only behind USA and has recorded a total of 27.9 million Covid-19 infections and 325,972 deaths as of Sunday. Although, in a relief to India, the steep rise has begun to slow.

Prime Minister Narendra Modi’s administration emphatically maintains that the economic impact will not be as severe as last year. The reason cited for this is less severe restrictions imposed in the current fiscal year and as growth in manufacturing and exports was higher.

But Arun Singh, global chief economist at Dun & Bradstreet, is of a different opinion and has maintained that the downside risks to growth were intensifying as the ominous second wave made the return to pre-pandemic growth rates difficult.

He stated that “Owing to the intensifying nature of the pandemic and the spread to the rural areas, which were largely spared in 2020, we expect growth prospects to have deteriorated for 2021/22.”

The Indian central bank, which has kept the monetary policy loose and has adopted an accommodative stance to boost the liquidity in the economy, stated on Thursday that growth prospects will strongly depend on how fast India can arrest infections, which in turn depends on vaccination rate in the economy, which at the current moment is flattering.

Modi has faced severe criticism for the slow pace of his four-month-old vaccination campaign not only from the local media but also from the international media. India has inoculated fewer than 4 per cent of India’s 1.38 billion people. Analysts warn that the slow rollout could pose medium-term risks to growth, especially if the country were to experience a third wave of Covid-19.

The economy, which was facing a slowdown even before the pandemic, now confronts a crash of consumer demand. The consumer demand constitutes over 55 per cent of the economy but as household incomes and jobs have declined, so has the consumer demand in the economy.

According to the data released by the Centre for Monitoring Indian Economy, a Mumbai-based private think tank, unemployment soared to a near one-year high of 14.73 per cent in the week ending May 23.

On Friday, Finance Minister Nirmala Sitharaman, maintained that no decision has been taken for another stimulus package. This is due to limited space due to a fall in tax collections and rising public debt.

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Source: The Indian Wire | May 31, 2021