(ATF) Business and economic activities in India are slowing rapidly due the furious second wave of Covid, and economists are concerned that the dramatic surge in Covid cases could not only pose a risk to India’s still shallow recovery – it could also drag the country’s back to the level it was on in 2019.
Worse, the slowdown in India could drag down the global economy, as well hitting global poverty alleviation efforts too.
“The second wave certainly has badly impacted India’s recovery from the first one. After shrinking 24.9% in the first quarter of FY 20-21, India’s economy revived remarkably in the second quarter. However, while the economy continued to gain in the third quarter, the recovery rate started losing momentum, and from the beginning of this year, that recovery had almost stalled,” Mahesh Vyas, CEO at the Centre for Monitoring Indian Economy (CMIE), told Asia Times Financial.
“So, the second wave is expected to hit the economy harder than first wave, It is beginning to appear that by March 2022, India’s GDP will go back to the March 2019 level,” he said.
According to IMF, India’s nominal GDP jumped 6.2% year-on-year to reach $2.87 trillion in March 2019, but slowed down to $2.71 trillion at the end of March 2020.
IMF’s GDP projections – made before the second wave – for 2021 and 2020 were pegged at $3.05 trillion and $3.31 trillion, respectively.
“Had it not been for the pandemic India would have gone much ahead,” Vyas said adding, “so India lost all of that growth due to the pandemic. And the second wave is going to make it worse.”
Business has plunged
According to a research note by Nomura released on Monday, India's pace of business resumption has started plummeting already.
The Nomura India Business Resumption Index (NIBRI), for instance, dipped to 83.8 for the week ended April 18, compared to 88.4 week earlier, that also saw a fall from the previous week.
“Currently, NIBRI is 16 percentage points below the pre-pandemic level. This suggests that the economy is 16.2 percentage points below its pre-pandemic normal – and at levels last seen in end-October, 2020,” Nomura said in the note.
With fresh lockdowns coming into effect in the current week, Nomura forecasts more pain before gain as states are likely to increase restrictions on account of overburdened health infrastructure.
“The rising death rate and anecdotal evidence of hospital infrastructure getting severely burdened, suggests that the current status quo on lockdown stringency, may be compromised in coming weeks,” Nomura said.
In a grim new record for the country, 295,041 people were found with Covid in the last 24 hours, while 2,023 died.
But with more than 2.1 million Covid patients currently battling with the infection either in hospitals or at their homes, the havoc-wreaking second wave has left the country’s healthcare system at the point of collapse, with hospitals even struggling to shore up supplies of medical oxygen.
State governments of the hardest-hit states like Maharashtra, and the capital New Delhi, like many other regions hit hard by the second wave, has been locked down since Monday as officials in the capital scramble to arrest the surge amid increasing demand for hospital beds.
Increasing restrictions across states have also led to an increase in unemployment to over 8% in the first two weeks of April, which is likely to hurt the 120-plus million unorganised workers as well as the economic recovery, Vyas' CMIE said.
“The bigger worry is the falling labour participation rate, which has fallen from 42.65% in March 2020 to 40.17 in March 2021. Going forward I see this number dipping below 40%, which is dreadful,” Vyas said.
The unemployment rate, adds CMIE, has been rising since the first week of April after states started imposing stringent Covid-related restrictions, paving the way to partial or complete lockdowns.
As per the CMIE data, unemployment rate in India stood at 7.2% with urban unemployment at 8.4% and rural unemployment at 6.6% as of April 14. Nationwide unemployment in March stood at 6.52% with urban unemployment at 7.24% and rural unemployment at 6.17%.
CMIE estimates 9.8 million jobs were lost in the salaried category with the total number of salary earners falling to 76.2 million by the end of March 2021 compared to 85.9 million in 2019-20.
Mass poverty returns
The IMF says India's much lower-than-expected GDP numbers will be the biggest drag on global growth for the next two years.
And experts say investors may be losing confidence in the Indian economy.
After the record-breaking equity inflows in the last financial year (FY21), foreign portfolio investors (FPI) are starting to scale back their exposure to India too, selling shares worth $1.09 billion in the first three weeks of April.
The Pew Research Centre says the slowing economy is disproportionately hurting rural areas, where the country’s majority of consumers and poor reside.
Having lived with irregular jobs for over a year, number of poor in India (with income of $2 per day or less in purchasing power) has more than doubled from 60 million to 134 million in just a year due to the pandemic-induced recession, Pew said.
According CMIE, India’s household income dropped from $296 per month (Rs 22,329) in October 2019 to $260 in October 2020 and is set to fall further.
“India accounts for a very large portion of the global population and the two waves of the pandemic have dragged a huge section of Indians below poverty level, so India will contribute significantly to the rise in the global poverty level going forward,” Vyas said.
In recent years, India emerged as the country with the highest rate of poverty reduction. In 2019, the Global Multidimensional Poverty Index reported that India lifted 271 million citizens out of poverty between 2006 and 2016.
But India’s uninterrupted progress in poverty reduction since the 1970s has stalled due to the pandemic.
Last time India reported an increase in poverty was in the first quarter-century after Independence. From 1951 to 1974, the population of the poor increased from 47% to 56% of the total population.
Contrast this with the situation in 2020: the highest global poverty increase happened in India, the Pew Centre said, adding, “India is back in a situation to be called a country of mass poverty after 45 years.”