Covid-19 resurgence casts shadow on India's economic recovery

As the second wave of Covid-19 hits many parts of the country, there is a looming threat to India's fragile economic recovery, writes Shravan Nune.

New Delhi: Barely two weeks after official estimates showed that Indian economy has found its way out of its first ever technical recession by growing at a moderate 0.4 per cent during the October-December quarter, storm clouds are gathering over the economy again with the second wave of Covid-19 infections on the horizon.

Similar to the infamous Spanish flu which operated in waves in the early 20th century, average daily new cases of Covid-19 have reached the 25,000 mark in the last few days forcing various state governments to impose shutdowns, lockdowns or night curfew to contain the spread of infections.

Impact on businesses

In Maharashtra, which is in the beginning of the second wave of Covid-19 pandemic as per the Union Ministry of Health and Family Welfare, the government has put in place restrictions in different parts of the state depending on the severity.

In Nagpur, which is a major industrial hub and the third largest city in the State after Mumbai and Pune, a complete lockdown was imposed for seven days.

According to the orders issued by the Nagpur district administration, only essential services such as vegetable and fruit shops and milk booths will stay open during the lockdown period.

In Latur, which is around 500 km south east of Mumbai, the administration has imposed night curfew between 8 pm and 5 am to contain infections.

In Aurangabad district, which is 350 km away from Mumbai, the hotel industry is severely hit as dining services have been stopped and eateries were restricted to take orders for takeaway parcels.

Sources suggest that restrictions will also be placed in Mumbai as the maximum city witnessed over 1,900 fresh on Tuesday.

In fact, the Government of Maharashtra has directed that except health and essential services, cinema halls, hotels, restaurants and offices should function with not more than 50 percent capacity across the State till March 31.

In Gujarat, the government has extended night curfew in Ahmedabad, Surat, Vadodara and Rajkot from 10 pm to 6 am till March 31.

Within Surat, as cases were largely seen in textile and diamond industries, the administration has made the Covid-19 test mandatory for the employees.

"Considering the prevailing COVID-19 situation in the city, people associated with textile and diamond industries will be required to get themselves tested once a week, and daily checking with pulse oximeter (to measure oxygen saturation level) will be mandatory," the officials said.

Sensing danger, the neighbouring Madhya Pradesh has started taking precautionary measures by imposing night curfew in Bhopal and Indore starting from March 17 until further orders

The state government has directed that markets must be closed by 10 pm in eight cities - Jabalpur, Gwalior, Ujjain, Ratlam, Burhanpur, Chhindwara, Betul, Khargone - in view of rising infections.

Meanwhile, some states have started imposing restrictions on inter-state travel.

For instance, Tamil Nadu made e-pass mandatory for all international and domestic passengers arriving to the state except those from Karnataka, Andhra Pradesh and Puducherry.

Besides, some states are continuing with the containment strategy of isolating high risk areas. For instance, in Bengaluru, 31 areas were marked as containment zones and 220 buildings were sealed for effective contract tracing.

Growing cases will undermine the recovery process

While the Centre has not made it clear so far whether there would be a nationwide lockdown or not, restrictions on the movement of goods and people in industrial regions like Maharashtra and Gujarat will affect the interconnected supply chains across the country.

As per experts, restrictions on businesses will affect the budding recovery of Indian economy that witnessed a recession with a de-growth of 23.9 per cent and 7.5 per cent in April-June and July-September quarters respectively, followed by 0.4 per cent positive growth in October-December quarter.

Speaking to ETV Bharat, Prithviraj Srinivas, Chief Economist at Axis Capital Ltd said: “High Frequency Data indicates softening or stabilization in recovery momentum. We expect the recovery to face some hiccups from regulatory restrictions being put in place to tackle resurgence in COVID cases.”

According to him, the surge in the number of cases impacts demand also as consumers see growing risk of income loss.

“A major difference between the increase in COVID cases now and a year ago is that global commodity prices have recovered sharply which can burden demand recovery even further since real incomes get pinched,” he added.

From a low of USD 19 per barrel in April 2020 on account of low demand, the price of Brent crude has clawed back to over USD 68 per barrel in the international market resulting in high pump prices of petrol and diesel in India.

In fact, auto fuels are at all-time high with petrol reaching over Rs 100 per litre in parts of Rajasthan, Maharashtra and Madhya Pradesh and over Rs 90 per litre across the country.

Similarly, diesel, the major transportation fuel, is also hovering around the Rs 90 per litre mark across the country putting a pressure on retail prices of other goods and services.

Unemployment issue

As per the Mumbai-based Centre for Monitoring Indian Economy (CMIE) unemployment rate has softened from a six-month high of 9.06 per cent in last December to 6.53 per cent in January on the back of improving business sentiment.

However, it has gone up by 0.37 per cent to 6.90 per cent in February indicating threats to the recovery process.

Experts are of the view that lockdowns and similar restrictions on businesses will have a cascading effect on the job market, especially on unorganised labour and vulnerable sections of the society.

Speaking to ETV Bharat, Dr Krishna Reddy Chittedi, Assistant Professor, School of Economics, University of Hyderabad said: “Some damage may be done to the economy due to the pandemic, resulting in greater inequality.”

He further said that the government should address the needs of daily wage earners, single women, senior citizens and divyangs in these critical times.

Govt should kick-start mass vaccination at the earliest

Amid the reports suggesting that the novel coronavirus is fast mutating, industrialists and experts have urged the government to speed up the vaccination process.

Recently, Anand Mahindra, Chairman and Managing Director of Mahindra Group, tweeted: “Over half the new daily cases are in Maharashtra. The state is the nerve-centre of the country’s economic activity & more lockdowns will be debilitating. Maharashtra needs emergency permission to vaccinate EVERY willing person. No shortage of vaccines.”

Echoing the views, Prithviraj Srinivas added that the pace of vaccination in India needs to be ramped up if we need to cover about 90 crore adult population this year. This is the only way to fully normalise activity and keep up with the rest of the world.

At present, Covid-19 vaccination is limited to health care workers, frontline workers, persons above the age of 60 years and persons above 45 years with co-morbidities.

As per the official data, nearly 3.50 crore doses were administered so far since the beginning of the nationwide vaccination drive on January 16.