Second wave, curbs will weaken India's growth recovery: Moody's

The sharp surge in COVID cases and the initiatives taken by India to thwart the second wave of the pandemic may pose a risk to Moody’s Investors Services’ growth projection of 13.7 per cent for FY22 for the country, said a LiveMint report on Tuesday (April 13).

Quoting the global rating agency, the report said that the re-imposition of stringent rules to curb the pandemic is bound to impact market and consumer sentiment in the country. 

However, India’s “targeted” strategy to curb the coronavirus spread like micro-containment zones instead of imposing a nationwide lockdown and the country’s push to ramp up its vaccination campaign will however end up mitigating the credit-negative impact. The country’s virus containment measures will help to lessen the severity of the impact on economic activity that India had experienced in 2020, said the report quoting Moody’s.

Also read:UN, IMF expect Indian economy to bounce back strongly in 2021

Moreover, according to Moody’s, India has a very low coronavirus death count (only about 170,179 deaths have been recorded as of April 12) and combined with a relatively very young population will further reduce risks. “GDP is still likely to grow in the double digits in 2021 given the low level of activity in 2020,” Moody’s added.

The International Monetary Fund (IMF) too seemed optimistic by upgrading its FY22 growth projection for India to 12.5% from a January estimation of 11.5%. However, the financial body added a rider that it had not accounted for the “severe downside risks” that may emerge from the country’s second wave of COVID-19.

India has registered more than one lakh daily Covid cases consecutively for the last seven days till Monday, and its active caseload has breached the one million mark. Many states, including Maharashtra, Delhi, Chhattishgarh, Punjab and Haryana, Karnataka etc., have re-imposed measures such as night curfews, partial lockdowns, closed down few services, malls and cinema houses and reduced working hours. 

In this situation, economists believed contact intensive services may be the first to be hit, even as manufacturing and services PMI had dropped in March itself as an early sign of the impact of the COVID-19 surge.

Also read: Indian economy may recover faster than anticipated: Oxford Economics

Retail and recreation activity too fell by 25 per cent as of April 7 compared to February 24, according to Google mobility data, said Mint. This was again echoed in the Reserve Bank of India’s March consumer confidence survey, which revealed that perception of the economic situation and expectations of spending on non-essential items were low.

The rating agency, Moody’s however highlighted the fact that vaccination will be a key role in India’s recovery from the second wave. The Indian authorities will also have to balance virus management and economic activity.

Though India has administered over 108 million doses of the coronavirus vaccine as of  April 12, the country suffers from shortage of vaccines. The sheer size of India’s nearly 1.4 billion population may impede the vaccine rollout and it may take time for everyone including people in remote locations to get vaccinated, said Moody’s. However, India has taken active steps to block vaccine exports and temporarily banned the export of Remdesivir, a key drug in treating COVID-19 patients.