Virendra Pandit
New Delhi: A devastating second wave of Covid-19 notwithstanding, the resilient Indian economy is now seen to grow as the world’s fastest!
Eight out of 12 rating estimates still see double-digit growth in GDP growth, despite downgrades. In fact, even among the remaining four, two estimate a 9 percent growth and above, the third at 8.5 percent, and the fourth at 7. 8 percent.
Media reported on Monday that the Indian economy’s resilience is being tested by its ability to overcome a devastating outbreak of Covid-19, although no one’s yet doubting its potential to pull off the world’s fastest pace of growth among major economies this year.
The Indian economy is well on track to grow 10 percent in the current financial year, according to the median of 12 estimates compiled by Bloomberg News. That’s after several economists downgraded their forecasts in recent weeks to factor in local curbs on activity, including in India’s political and commercial hubs.
Those predicting a minimum of 10 percent GDP growth even after a second wave are Bank of America (BofA) Securities, India Ratings, Deutsche Bank, SBI, QuantEco Research, Elara Securities, Nomura, and Bloomberg Economics. Barclays and Icra estimated 9.2 and 9 percent, while Societe Generale and ING Bank’s estimates were 8.5 and 7.8 percent, respectively.
In fact, BofA Securities and Deutsche Bank have stood their ground. Even after the devastating second wave, they have retained the GDP growth rate at 10 and 10.5 percent, respectively, meaning the second wave is unlikely to impact the GDP growth.
But the downgrades are a message to not take the economy’s recovery for granted. Economists say the relaxation of restrictions across states will determine the strength of the rebound, while the willingness of consumers to spend—as they did last year when lockdown curbs were lifted before the onset of festival season—will also be key.
In the third quarter of 2020-21, soon after relaxation in the restrictions, the lockdown-freed people rushed to buy consumer items, spurring consumption in Asia’s third-largest economy. In the fourth quarter of FY21, GDP was estimated to have grown 1 percent, making it the second straight quarter of expansion since India exited a rare recession, reports said.
Once bitten, twice shy. Some economists, however, strike a balanced approach. Despite virus caseloads receding and the possibility of some parts of the country reopening by June, many consumers are unlikely to spend freely, given the economic uncertainties and with unemployment at its highest level in a year.
The households would rather save than spend, said QuantEco Research economist Yuvika Singhal, who downgraded her full-year growth forecast by 150 basis points to 10 percent.
Demand has seen the biggest hit from the second wave of infections, with a loss of mobility, discretionary spending, and employment, the Reserve Bank of India said earlier this month. The central bank, which will review interest rates later this week, has kept monetary policy loose and injected liquidity into the system to support growth.
“Even as India’s second Covid-19 wave starts to recede, the underlying economic toll now appears larger than we expected,” Barclays economist Rahul Bajoria said. “Furthermore, the slow pace of vaccinations and rolling lockdowns are also likely to weigh on India’s recovery.”
If the country is hit by a third wave of infections, as some experts warn, the economic costs could rise further, dragging down growth to 7.7 percent, Bajoria said.