The ferocious second wave of Covid 19 has caused severe wreckage in India. The depth of the destruction and death exposed the poor preparedness and sorry state of affairs that the country found itself in during the last few weeks. Several local lockdowns were imposed by Indian States, which has perhaps resulted in control of the virus spread. Though the situation has significantly improved now and reduction in the official Covid count of new cases as well as active cases seems to show that the peak was attained, health experts have warned that the tail of the decline could be prolonged. It is not very difficult to associate the lasting impact of this on the business opportunities and corresponding future economic growth in India. The progress of the vaccination remains the key to slowing down the impact of the virus in any future waves.

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Moody’s revises forecastMoody’s has revised its forecast for India’s economic growth in the current financial year downwards to 9.3 per cent from an earlier projection of 13.7 per cent. Revising its projections for India’s GDP growth, Moody’s said that the second wave of COVID-19 is expected to be less disruptive than the first wave. “The reimposition of lockdown measures will curb economic activity and could dampen market and consumer sentiment. However, we do not expect the impact to be as severe as during the first wave,” Moody’s said. “Unlike the first wave where lockdowns were applied nationwide for several months, the second wave “micro-containment zone” measures are more localized, targeted and will likely be of shorter duration. Businesses and consumers have also grown more accustomed to operating under pandemic conditions.” Moody’s said the economic impact of recent surge in COVID-19 cases is expected to be limited to the April to June quarter, followed by a strong rebound in the second half of the year. However, the slower pace of growth will drag down near-term economic recovery and affect long-term growth dynamics. As a result, the agency revised its projection for the government fiscal deficit to 11.8 per cent of GDP in FY22, from an earlier projection of 10.9 per cent. Moody’s further expects general government debt burden to rise to 90 per cent of GDP in the current fiscal, which will rise to 92 per cent in FY23.

Fitch – Fitch Solutions recently released its ‘Covid-19 Resurgence Bringing Renewed Challenges For India’ report. The key views expressed in the report are that a resurgence of Covid-19 cases in India exposed cracks in the Indian healthcare system. Supply challenges has prompted restrictions on exports of Covid-19 vaccines including those from the world’s largest vaccine manufacturer, SII (Serum Institute of India). While containment measures will weigh on India’s ongoing economic recovery, the localised nature of restrictions means that the actual impact is likely to be much less severe relative to April-June 2020 when a strict nationwide lockdown was imposed, Fitch Solutions said. It forecasted real GDP to grow 9.5 per cent in 2021-22 (April 2021 to March 2022). Risks to this forecast are to the downside, as the surge in new daily COVID-19 caseloads will most likely see an extension and expansion of lockdowns, it said. 

United Nations – The United Nations recently released its ‘World Economic Situation and Prospects as of mid-2021’ report which updates its earlier report released in January 2021. The report forecasts India’s GDP to be 7.5% for 2021, which is a marginal (0.2%) increase from January, and 10.1% for 2022, which is a significant (4.2%) increase from January 2021. The report has captured that India, with daily new infections averaging over 300,000 during the third week of April, is now the new hotbed of the pandemic. It also mentioned that India has been particularly affected by a brutal second wave, which is overwhelming the public health system in large parts of the country. The country has expanded vaccine eligibility and is ramping up supply in every possible manner, but access to vaccines is unequal and insufficient to meet the massive demand. Given the fluid situation, India’s growth outlook in 2021 is highly fragile.

IMF to revise Economic Forecast – The International Monetary Fund (IMF) recently said that the recent jump in Covid 19 cases in India posed downside risks to the Fund’s April forecast for 12.5% growth in India’s economic output in fiscal years 2021 and 2022. The IMF will revisit that forecast when it issued a fresh World Economic Outlook in July, IMF spokesman Gerry Rice told reporters at a regular briefing, but gave no further details. He said the developments in India, the world’s second most populous nation, would have spillover effects for the region and the global economy, depending on how long the crisis lasted, but it was too soon to give specifics. “We’re all watching what is happening in India with concern,” Rice said. “There will be spillovers … contingent on how deep and how long the severity of this crisis continues.”

Increase in FDI InflowsDespite some moderation in the March quarter, the inflows last fiscal remained very encouraging, given the devastation and disruption caused by the pandemic across the globe. A spike in the cases in key states like Maharashtra in the second wave (in March) and some curbs on movement may also have weighed on the inflows. Foreign direct investment (FDI) in equity in India rose 19% year-on-year last fiscal to a record $59.6 billion despite the onslaught of the pandemic. However, such inflows, which had jumped as much as 40% between April and December, seem to have lost some momentum in the March quarter. The gross FDI inflows — which include FDI in equity, reinvested earnings, the equity capital of unincorporated bodies and other capital — rose 10% year-on-year to an all-time high of $81.7 billion in FY21, showed the data released by the commerce and industry ministry on Monday. The gross FDI, too, had risen by a healthy 22% up to December last fiscal before easing in the March quarter. Going forward, the bigger worry for FDI inflows, especially in the June quarter, would be the severity of the second wave and local lockdowns imposed by certain states to control the Covid-19 surge. Singapore remained the top FDI source, accounting for 29% of the inflows last fiscal, followed by the US (23%) and Mauritius (9%). Computer software & hardware emerged as the top sector, with a 44% share in total FDI equity inflows, followed by construction (infrastructure) activities (13%) and services sector (8%).

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at; Twitter: @sourish247

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