Second wave set to drag down economy’s growth
Economic forecasters are at it once again. Amid rising Covid-19 infections, localised lockdowns and curfews in select states, GDP growth estimates are being revised downwards at breakneck speed. The Indian economy is now expected to grow by 10-11% this fiscal as against the 12-13.5% projected earlier.
The modest forecast so far has been from the RBI and the World Bank at 10.5% and 10.1% respectively, but they too could be tipped for the chop in the coming weeks. The economy is believed to have contracted by 8% in Covid-hit FY20-21, but hopes were high that recovery had already begun in Q4. But none would argue that the pace of recovery is so fragile that it could be knocked over with a feather. That knock has invariably come from the second wave of infections that struck economically important states like Maharashtra, Gujarat and Delhi hard.
GDP growth between April and June was supposed to be obscenely high at over 30%, largely due to a low base of 24% contraction seen during the same period last year. Analysts expect the current restrictions to remain in place until May and though the impact could be lower than 2020, it’s undeniable that it will cut into growth like a hot knife through butter. Consumption, which accounts for about 60% of GDP, remained disappointing last fiscal, but was expected to pick up pace this year. That prospect is now a lost hope, at least in Q1.
Notwithstanding the grim state of affairs, chances of a fresh fiscal stimulus seem remote. But the RBI believes the less stringent lockdowns, an adaptation to the new normal, ongoing vaccinations, stronger global growth, front-loaded fiscal activism and lagged effects of easy financial conditions will support cyclical growth recovery. Still, multiple growth revisions appear as sure as fate and even though economists see either W, V, or K-shaped recovery, for now they are all subject to the 50-50-90 rule, where if there’s a 50-50 chance of getting something right, there is also a 90% probability of getting it all wrong.