India’s economy may shrink amid soaring Covid-19 cases, analysts warn

The latest surge of coronavirus cases in India is likely to drag down Asia's third largest economy, which has yet to recover from the pandemic-driven slowdown last year, economists say, revising earlier forecasts.

India reported another 323,144 infections over the past 24 hours, bringing the country’s cumulative Covid cases to more than 17.6 million. Some states have introduced partial lockdowns or harsh restrictions, such as curfews.

The first quarter of the fiscal year that begins in April is “clearly going to see a sequential growth hit,” according to Sonal Varma, chief economist (India) at Nomura, as quoted by CNBC. The analyst projects the country’s GDP to shrink by about 1.5% from April through June.

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“There is a downside risk to this number, given the extended lockdowns we are seeing across states, but we do still think it’s going to be a double-digit growth for India,” the analyst told the media.

However, the economy may grow only 25% against the fiscal first quarter of last year, as India’s GDP contracted nearly 24% in the same period in 2020.

“We might still be able to eke out a double-digit growth,” Radhika Rao, an economist at DBS, said, echoing Varma’s sentiment.

DBS expects the Indian economy to grow by 10.5% for the full fiscal year that ends in March 2022.

“I might have to bring [my prediction] down by half a percent or a percent in the coming weeks, depending on how restrictive the restrictions are going to be,” Rao said.

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She added that “some kind of recovery” is expected to emerge in the July-to-September period: “Last year’s example also showed that, once the numbers start to peak off and recede, economic activity certainly tends to come back because of pent-up savings, because of pent-up demand.”

Rao also pointed out that the current restrictions are more localized, and concentrated on the services side, in comparison with those imposed during the first wave of infections.

“We have enough anecdotal evidence of factories in the state of Maharashtra which are able to operate at 100% capacity despite the lockdowns,” she said.

Maharashtra, where the country’s financial capital, Mumbai, is located, has become the epicenter of India’s second Covid wave.

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