Second Covid-19 wave throws cold water on Indian economy, says CRISIL, as it lowers GDP forecast to 9.5%

The second Covid-19 wave has thrown cold water over the Indian economy that was beginning to warm up after the most severe contraction since Independence, rating agency CRISIL said, adding that it was lowering it’s the country’s economic growth forecast by 150 basis points to 9.5 percent for the current fiscal.

“The rash of afflictions that followed forced states to lock down, hurting consumer and business confidence yet again. Mercifully, daily cases seem to have peaked for now, though they remain above the peak of the first wave. But the risks of another wave and tardy vaccinations mean states would be chary of fully unlocking anytime soon,” it said in a research report.

CRISIL said the downward revision is premised on the clearly evident hit to the two engines of growth – private consumption and investment – by the second wave. “Our new base forecast assumes that Covid-19 restrictions will continue and mobility will remain affected in some form or other, at least till August. The pace of economic recovery will also be a function of what the pace of vaccination is in the coming months. We find that countries with over 40% of their population vaccinated are seeing a faster and more broad-based economic recovery,” it added.

The government on Monday announced that it would procure vaccines for all Indians and give them to the states to reach everybody. CRISIL said plans to vaccinate India’s entire adult population by this December was a tall order even if sufficient vaccines were available.

“A third wave would pose a significant downside risk to the growth forecast, as would a slower-than-anticipated pace of vaccination. In such a pessimistic case, we see GDP growing at 8%,” the report said.

 India’s GDP bounced back to the pre-pandemic level by the fourth quarter of last fiscal, after a sharp contraction in the first quarter. However, the second wave has likely erased those gains in the first quarter of this fiscal. Consequently, it would take more than a quarter to revisit the pre-pandemic levels.

“In our base case of 9.5% growth, that could happen after the second quarter. Assuming restrictions ease after August, recovery could strengthen and become more broad-based from the third quarter of this fiscal. In our pessimistic case of 8% growth, quarterly GDP would surpass the pre-pandemic level only in the third quarter,” CRISIL said in the report.

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