Not long ago were the days where India saw COVID numbers hardly hitting the 10,000's. However, in a span of simply 2-3 weeks, the number of cases has exceeded numbers posted in 2020, going about 3 lakh as of the fourth week of April. While many states and cities are going under a lockdown again, the question remains- will the impacts hit the economy like it did in 2020, or will it be different this time?
In terms of sheer numbers, the effects do lookout to be very bad, as a study by PRP strategies has indicated that the first quarter of the fiscal year 2021-2022 would be the most affected, citing the possibility of the second wave dampening in the month of June. State Bank has also revised its downwards its growth projection for the year 2021-2022 to 10.4% of real GDP growth and 14.3% of nominal GDP growth from the 11% and 15% respectively as stated during the start of the fiscal year.
The statistics look really bad, as SBI states that the lockdowns imposed during the month of April 2021 alone had costed the GDP by about 0.7%, with 80% of the losses coming from specific states like Maharastra, Madhya Pradesh, and Rajasthan, with Delhi also being a huge contributing factor.
While the numbers do seem staggering, it is still seen that in brunt of cities, a certain set of economic activities are still going on, which is what distinguishes this particular scenario from that of the 1st wave of COVID and the complete lockdown. Even though the second wave is stronger, the economic impacts, both long and short term are not as pronounced, which was further reiterated by KV Subramanian, the Cheif Economic Advisor. The inequality in the system would however still continue, as the same segments that were hurt earlier, would also be hurt this time.
The first wave of the coronavirus saw a lot of industries being completely shut down and had seen massive losses. However, if there is anything that the 2nd wave across Europe and the US have taught the world, it is that the manufacturing sector, especially the bigger manufacturers are more reasonably placed to weather the second wave. Having optimized their processes and been much more vigilant with their health and hygiene policies, they are not only much more careful, but have also learn from the first wave. Moreover, public entities such as Public Sector Banks are much more well equipped to and are in a better shape than that of during the same time last year.
It is also seen that a lot of other industries such industries supporting the healthcare industry and the major manufacturers are also running and are well equipped to handle another potential crisis. However, what is a major cause of concern is the fact that that the MSME's and other small scale industries are still reeling under the financial effects of the first wave, and more so, cannot face another complete lockdown and lose their business.
Moreover, the problems with migrant workers are reminiscent to that experienced during the initial days of the lockdown. While the power demand and labour participation rate has not been affected too much in smaller cities at this point, the story is different in metros and bigger cities, with lockdowns in major cities and further curfews being an impending effect of the 2nd wave, construction, infrastructure work and other activities in the unorganised sector will take a huge hit, with work getting suspended in multiple places.
This brings back many questions, such as having income support to the vulnerable groups and to the MSME's. With the government currenly facing a crisis with respect to lack of medical supplies and are looking into boosting manufacturing and imports of raw material, the question remains as to how much they will be able to support the people who are in need of the resources.
RBI’s Executive Director Mridul K Saggar said the economic recovery could come under risk if the new wave of infections was not flattened soon, especially as “monetary and fiscal policies have already used most of their space to considerably limit loss of economic capital”. The rise in infection could delay full normalisation by a quarter or two. Health policies have become the first line of defence, while the “monetary and fiscal policies can only play second fiddle”. According to RBI governor Shaktikanta Das,
The “need of the hour” was to “effectively secure the economic recovery underway so that it becomes broad-based and durable”.
The impacts of the 2nd wave are also felt within the tourism and aviation industry once again, as the amount of flights and bookings have almost halved, as compared to that of March of 2021. With countries such as Canada and the United Arab Emirates temporarily suspending flights from India. The hospitality industry has also seen the hit, with the reduction in the tourism currently. One major relief for the economy however, would probably be the normal forecast of monsoon by the IMD this year, which would be helpful for robust agricultural growth.
As of this point in time, it is still unaware of the long-term impacts of the 2nd wave, given the fact that many experts feel that the wave has not yet hit its stride, and the uncertainty on further restrictions. However, given the experience from the 1st wave, and the way industries, at least bigger ones have adapted, the economic effects can hopefully not be as damaging as it was before, and hopefully, less harmful on the more vulnerable people.
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