NEW DELHI: With back-to-back lockdowns in various states denting business activities, the worst hit to the Indian economy will manifest in May, Japanese brokerage Nomura said on Monday. Already, the pace of India’s business activity resumption has dropped drastically to levels last seen in June 2020 after having fully recovered in February.The Nomura India Business Resumption Index (NIBRI), which tracks a weekly dashboard to capture a host of ultra high-frequency data, fell to 60 for the week ended May 23 from 63 a week ago.
Google’s workplace and retail & recreation mobility indices fell by 5-6 percentage points week-on-week. Power demand continued to contract, down by 5%. Labour participation rate moderated to 39.4% from 40.5%, with the unemployment rate perked up to 14.7% from 14.4% last week.The index curve has been on a downward trajectory since fresh lockdowns were imposed across states. With restrictions extended through May-end in most states, economists believe that a sequential improvement in activity is likely in June.
“Both mobility and non-mobility sectors have been hit. Lockdowns look to spill into June, but a few states are announcing a slow rollback of restrictions as their virus caseloads fall, which suggests a sequential improvement in activity in June,” said Sonal Verma and Aurodeep Nandi, economists at Nomura.Rolling out state-wide lockdowns appears to be moderating caseloads, but the second wave has unleashed a devastating human cost. International experience, however, suggests GDP growth is less sensitive to lower mobility during the second wave.
Nomura expects the impact of second Covid wave on the economy to be limited to the first quarter of this fiscal year, unlike the first wave, which pushed the country into a rare recession. Meanwhile, a section of economists have warned that if the localised restrictions continue for another month, there could be further downside risks in GDP growth.Recently, Crisil said its 11% growth forecast for FY22 faces downside risks. If the second wave peaks by May-end, FY22 growth could drop to 9.8% and more sharply to 8.2% if it happens only by June-end. S&P Global Ratings says the second wave “may derail a strong recovery in the economy and credit conditions’’.