When early signs of the second Covid-19 wave emerged in India a few months ago, many experts predicted that the economic damage would not be as bad as the first wave in 2020. There were two primary reasons behind the assertion — India had vaccines against the virus and no nationwide lockdown was imposed.
But almost three months after the first signs of the second wave emerged, India is struggling to vaccinate its vast population and strict lockdowns remain imposed in almost all parts of the country. As a result, the economic growth projections shared earlier have changed drastically. Even SBI, the country’s largest public lender, recently slashed its FY22 growth forecast.
Data on jobs, income, household income, consumer sentiment and demand show that the second wave has had a devastating impact on India’s economy, especially on poorer citizens and smaller businesses. Even rural areas that were a saving grace during the first wave have been deeply affected this time.
LESS THAN EXPECTED GDP GROWTH
Many ratings agencies and banks have lowered their FY22 GDP forecast for India in just a matter of months. While India’s March quarter (Q4FY21) GDP growth improved, economists believe that the gains have been eroded by the second wave of the pandemic.
On Tuesday, the State Bank of India (SBI) slashed the country FY22 growth forecast to 7.9 per cent from the earlier 10.4 per cent. Several international banks and ratings agencies have also slashed India’s growth for the current financial year in view of the devastation caused by the second Covid-19 wave.
The first wave has already taken a toll on India’s GDP in 2020-21. Official figures for full-year growth released this week indicated that India’s economy contracted 7.3 per cent in FY21 — the sharpest ever in the country’s history.
While India’s economy was earlier expected to rebound faster among all major economies in FY22, the first quarter growth has already been hit hard by the second wave. In contrast, developed economies like the US and China have witnessed a far better rebound. Even neighbouring Bangladesh has surpassed India in terms of per capita income.
The lower per capita income not only signals rising inequality among the rich and poor but also highlights how poverty is on the rise in India.
SBI Chief Economist Soumya Kanti Ghosh told news agency Reuters that GDP growth of less than 10 per cent in FY22 would “not be very beautiful” for the country.
One major evidence of economic weakness is official data on rising loan defaults and cheque bounces. Banks have reported a rise in loan defaults and cheque bounces during the second wave. It signals that many citizens are struggling to clear debts.
Cheque bounces rate for loan repayments have doubled to over 20 per cent from the year-ago period while credit card defaults rose to 18 per cent, suggested a Reuters report, quoting data from fintech company Creditas Solutions.