New Delhi: India is expected to achieve the world record of administering one billion doses of Covid vaccines in this month but that may not be enough to return the country to the path of high GDP growth which only looks possible from July next year onwards when 80% population will be fully vaccinated, said a report by Oxford Economics.
According to the report, which analyses India’s vaccination trends and frequent economic indicators such as the data from Reserve Bank’s current and future customer confidence surveys, Purchasing Managers’ Index (PMI) data, industrial production and mobility data among others, India’s GDP growth will be muted for the next 8-9 months.
“We still think India’s recovery will be subdued in the second half of 2021 (July-December), despite a significant pick-up in vaccinations from August,” Priyanka Kishore, Head of India and South Asia Economics at Oxford Economics, said in the report. The deadly Sars-CoV-2 virus has killed more than 4,50,000 people in India and more than 4.8 million people worldwide. It also caused a decline of more than 7% in India’s GDP in the last fiscal.
Why would GDP growth remain subdued?
There are several reasons for it. The report says that the recent uptick in vaccination is mostly first doses and it will take time for the second doses to be administered as India’s main anti-Covid vaccine Covishield has a gap of 12-16 weeks between the two doses as per the government policy.
According to the think tank’s estimate, around 40% of the population will be fully vaccinated by December and 70% will be vaccinated by March next year. “This should provide a strong fillip to sentiment early next year and spur consumption,” Priyanka Kishore said in the report.
She, however, warns that in the short term the relatively low proportion of fully vaccinated people will likely keep consumers cautious and constrain the recovery in services and manufacturing.
Mobility, electricity consumption improvement not enough
The researchers also looked at the aggregate Google mobility data at the national level which jumped from -50.5 at the start of May this year when a second devastating wave was ravaging the country. The index jumped to 4.5 at the end of September when there were very few restrictions on movement across states.
Also, electricity demand accelerated to 17.4% in August on a year-on-year basis from 6.3% in May. The manufacturing PMI improved also significantly to come back into the expansionary zone from July after the second wave peaked in June this year.
Despite improvement in mobility, electricity consumption and PMI indices, not all the sectors of the economy are doing well, particularly services and contact intensive services such as tourism and hospitality remained weak in comparison with manufacturing sectors.
“Even within manufacturing, capital and infrastructure industries are doing better than consumer goods partly due to supply bottlenecks, but also because of the persistent threat of a third Covid wave,” Kishore said.
Reopening poses fresh challenges
The pace of reopening by Indian states worried the researchers as it may lead to rising Covid cases as it was seen in Kerala. The second worry is that States have been relaxing restrictions based on Covid metrics rather than the pace of vaccination.
“This risks potential flare-ups of infections that may require re-tightening of restrictions, as evidenced in Kerala. There, a surge in infections in the run-up to the August Onam festival led the state government to re-impose some Covid measures to contain the outbreak,” Priyanka Kishore said.
Recent spike in vaccination may not be enough
Though Oxford Economics researchers noted that India’s pace of vaccination was much faster than their previous estimates. On an average, 7.7 million doses were administered daily in September against 2.7 million daily doses during the April-May-June period.
The report, however, noted that the pick-up in vaccination was primarily due to first doses, which offers limited protection against the Delta variant. “It’s clear that the proportion of the population fully vaccinated is the key figure. This is also borne out by Kerala’s experience. More than 40% of its population had received at least one dose when the third wave broke out,” Priyanka Kishore noted.
Regional imbalances in vaccination
The report said 17.9% of India's population was fully vaccinated at the end of September which was not only relatively low but it also revealed regional divergences. For example, according to the data analysed by the researchers, smaller and less populous states continue to do better than larger and more economically significant ones.
“These states include Uttar Pradesh, Maharashtra, Tamil Nadu, and West Bengal, which together account for 37% of national GDP. Their low vaccination and high mobility rates leave them very vulnerable to the virus,” they said in the report.
Priyanka Kishore says the number of fully vaccinated people can pick up fast but it is unlikely to happen in the October-December period due to the 12-16 weeks gap between two doses of Covishield, India’s primary Covid vaccine.
She also highlights the risk of the government’s decision to resume the vaccine export from October which was suspended in March this year to meet the domestic demand.
Second, disruptions in the global supply chain may impact domestic production and combination of these two factors will make it difficult to sustain the fast pace of vaccination witnessed last month. “Consequently, we still expect only 40% of the population will be fully vaccinated by the end of the year,” said the authors.
Worrying signs
According to researchers, despite the significant uptick in vaccination in recent times, the near-term outlook remains fragile. They highlight the adverse impact on consumer confidence in India caused by the fear of a possible third wave during the ongoing festival as reflected in the recent data released by the Reserve Bank.
The RBI’s current consumer confidence index slumped to an all-time low of 48.5 in June and has remained there since. Second, the future expectations index edged back into optimistic territory in July, but was still substantially below the January 2021 reading of 117.1.
“We expect consumers to stay cautious until vaccination rates rise much higher, which is likely to constrain the services recovery especially in high-contact services,” the researchers said.
They said India would be better prepared to deal with any future Covid wave as 80% of the population will be vaccinated by the middle of next year which will lead to faster economic recovery thereafter.
The authors also highlighted the unknown risks posed by new variants that may require booster shots.
“The path of the virus and health response remain downside risks and may keep growth vulnerable to serious setbacks for longer than we anticipate,” said Priyanka Kishore.
