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Will the second wave disrupt economic recovery?

It has been more than a year since India went into nationwide lockdown. Though since then the lockdown restrictions have been gradually relaxed, life has not yet become business as usual for most of us. Even before the situation reached normalcy, we are now seeing second wave of the pandemic setting in and with that there are talks of ‘Lockdown 2.0.’ In fact, some of the rules of Lockdown 1.0 are already being re-imposed in some cities like Mumbai and Pune.

Second wave yet to become widespread

District wise analysis shows that cases have again started increasing in top 15 districts, mostly urban (like Mumbai), while the spread in rural districts is almost stable: There is also clear shift in rural penetration from Kerala in January 2021 to Maharashtra in March 2021. Now the Pan-India total cases in the second wave is expected in the order of 25 lakhs. Though the casualty rate in the second wave is less it may pick up in the coming days. Now the big question is whether it is the new beginning or the beginning of the end (of Covid-19)?

Impact on the economy

The spectacular recovery shown in Indian economy after the relaxation of the lockdown norms in the second half of 2020 has continued in 2021 also. But the commencement of the second wave has brought a sense of uncertainty among the common man as well as industries. Sustained uncertainty of this sort will puncture whatever we have gained in last nine months or so. Suddenly the pictures of deserted streets, long lines of migrant workers going back to their native villages, long queues to buy essentials, etc., have once again started haunting the minds of common man.

Metro cities are worst affected

Most importantly, it’s the Metro cities like Mumbai, Bengaluru and Delhi, which are the major casualties of the second wave. These cities were some of the worst sufferers of the first wave and were the last ones to come out of lock down relaxations. Our Metro cities are also the main centres of demand and consumption and if the economic activities in these cities go down overall demand too will come down, making economic recovery that much slower and difficult.

Bad for real estate

The second wave is a bad news for real estate industry which had started recovering from abyss, thanks mainly to some of the concessions given by some of the state governments. It should be noted that December 2020 had witnessed highest-ever demand in over a decade at pan-India level, due to decadal-low interest rates, attractive festive season schemes offered by developers and stamp duty cuts in Mumbai and Pune. Government of India along with the governments of respective States has taken several initiatives to encourage development in the sector which are producing results too. However, if the second wave continues for prolonged period it may nullify whatever good has happened for the sector in last six months. Not only new construction will be affected, but also it may deter the potential new home buyers who may defer their decisions.

If prolonged, our exports may be impacted

Some sectors like home textiles and tiles are thriving because of good exports demand. So far it has been the case of ‘China’s loss is India’s gain.’ However, if the factories have to be closed or cannot be run at optimum capacity due to non-availability of labour and logistic problems, delivery schedules will be missed which may eventually lead to diversion of export orders to some other countries. If the Indian industries have to make most of the emerging scenario, uninterrupted continuation of production and timely adherence to delivery schedule are most crucial.

Mobility will be affected  

As the second wave starts spreading it will have its impact on mobility. The knock-on effect of the second wave on mobility till now suggests a likely sequential dip in contact-based services and a near-term delay of normalization.

On the manufacturing side, IIP looks to be improving since the March – April period due to base effect but it remains muted. Net FDI levels also moderated and one important point to note here is the falling imports of capital goods which implies there is lesser demand from manufacturing and industrial sector. On the other spectrum, non-oil non-gold imports has been rising initially since December 2020 but fell slightly in February 2021 – a high non-oil non-gold imports is detrimental to current account balance.

Vaccine can make all the difference

Though Global COVID-19 experience shows second wave much higher in intensity than the first wave, presence of vaccine makes the difference currently. Thus, India may be able to manage the situation better. Certain states like Rajasthan, Gujarat, Kerala, Uttarakhand, Haryana have vaccinated more than 20% of their elderly population (above 60 years).

An analysis shows that if we assume more number of people are willing to take vaccines and the daily vaccine inoculation increases to 40-45 lakhs from the current maximum level of 34 lakhs, then with this capacity we can vaccinate our population above 45 years in 4 months from now. But the intensity of COVID-19 will start tapering off much earlier. So, year 2021 may not be repetition of 2020 as vaccination will play a dominant role this time.

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