India’s rising virus cases risk denting economic recovery

Bloomberg

A surge in coronavirus cases in India could hurt the economy’s recovery from a rare recession, as curbs to avoid a new wave creates delays in putting millions who lost their jobs to the pandemic back to work.
“There is a restless urgency in the air in India to resume high growth, and incoming data point to even contact-intensive services such as personal care, recreation and hospitality gathering traction,” central bankers led by Deputy Governor Michael Debabrata Patra wrote in the Reserve Bank of India’s monthly bulletin. But “another outbreak, more lockdowns and restraints, will get unbearable in spite of learning from initial experience of living with the virus.”
That’s seen as a cautionary footnote to the RBI’s earlier year-on-year growth projection of 26.2% for the April to June quarter. Kaushik Das, chief India economist at Deutsche Bank AG in Mumbai, says if cases continue to surge, it will cost the economy and the impact on growth will be felt in the April to June quarter.
“Anticipating such a possible uptick in Covid-19 cases, we have already taken relatively lower real GDP growth estimate for April-June of 25.5% year-on-year,” he said, compared to the RBI’s forecast.
In recent weeks, new coronavirus cases have shot up across India despite a rollout of a nationwide vaccination drive. Confirmed infections have risen to about 40,000 daily from a low of about 9,800 in February, pushing the overall tally past the 11.5 million mark.
Unlike other Covid-19 hit regions such as Europe, India has so far been reluctant to reimpose any more harsh restrictions. Around this time last year, Prime Minister Narendra Modi ordered a strict national lockdown with just a few hours’ notice, inadvertently causing an exodus of millions of city-dwelling laborers back to their villages rather than starve without work — spreading the virus across the breadth of the country and inflicting deep economic damage. After a slow start the country’s vaccination rate has also picked up pace, with almost 45 million doses administered so far, up by about 15 million from a week ago
The latest outbreak is centered in Maharashtra, a state that contributes 14.5% to the country’s overall GDP and is home to the nation’s financial hub Mumbai. Some districts of Maharashtra have gone back into lockdowns, at a time when unemployment is ticking higher.
India’s jobless rate, as calculated by think-tank Centre for Monitoring Indian Economy Pvt., inched up to 6.9% in
February from 6.5% in January.
While official data show the city’s hospitals haven’t reached full capacity that induces panic, economists point to India’s weakened banking sector and a fragile fiscal position as key sources of economic risk.
“India’s recovery is likely to be hampered by the recent surge in infections, a waning fiscal response and balance sheet stresses,” said Priyanka Kishore, head of South and south-east Asia economics at Oxford Economics in Singapore. According to her, economic momentum slowed considerably in the January to March period and it could come off even further in the coming months, proving to be a drag on growth.
The RBI’s monetary policy committee will meet early next month to decide on interest rates, which are widely expected to be held at record low levels.