Moody’s: Covid-19 second wave dented aggregate demand but impact limited

Global rating agency Moody’s on Wednesday said the resurgence of coronavirus has dented India’s aggregate demand and added uncertainties to the country’s growth forecasts.

However, the economic impact of the second Covid wave would be less severe than last year and will likely be concentrated in the June quarter. Nevertheless, faster vaccination progress will be crucial to limiting economic losses to the current quarter, it said. The recently-announced centralised vaccine procurement drive, if implemented well, could aid in economic recovery, it added.

In the wake of the second wave, the agency had in May slashed its India growth forecast to 9.6% for the calendar year 2021 from 13.9% announced earlier. It projected growth to slow down to 7% in 2022. Earlier this month, the Reserve Bank of India joined several others in revising down its FY22 forecasts. It now projects growth to slip to 9.5% from 10.5% expected earlier.

Moody’s, however, said the current lockdowns would have less of an adverse impact on economic activity than the nationwide lockdown in April 2020, as the latest curbs have been “more targeted, localised and less stringent”. Also, consumers and businesses have adapted. The virus resurgence has mainly dented aggregate demand, in contrast to last year when the lockdown also constrained supply.

Stringent lockdowns in economically significant states following the second wave will mar the economic activity during the June quarter, as the 10 states that have been hardest hit (including Maharashtra, Tamil Nadu, Uttar Pradesh and Karnataka) together account for more than 60% of the pre-pandemic level of India’s GDP.

As for vaccinations, the Centre only about 16% of the country’s population had received one vaccine dose by the third week of June; of those, only about 3.6% had been fully vaccinated. “Mobility and economic activity will likely accelerate in the second half of the year as the pace of vaccinations pick up,” the agency said.

Facing flak from the Opposition and the courts for its vaccine strategy, the Centre this month decided to provide free Covid vaccines to states from June 21, spelling out clearly that all the countrymen would now have access to free jabs at government hospitals. The Centre will buy 75% of jabs from vaccine manufacturers, including 25% of the state quota, and give them for free to the state governments, Prime Minister Narendra Modi said. On June 21, a record 8.6 million vaccines were administered but a more daunting task is to sustain this rate in the coming days.