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by on May 8, 2021
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Many brokerage firms had predicted the second wave to disrupt India’s growth for only a quarter due to few restrictions on mobility and businesses. However, pressure on the economy seems to be gradually rising as states tighten restrictions in view of rapidly rising cases and deaths.

India Today Web Desk
 
India’s economic recovery could face major roadblocks if the Covid-19 situation continues to deteriorate. On Thursday, the country reported over 4 lakh daily cases and nearly 4,000 deaths.

Many brokerage firms had predicted the second wave to disrupt India’s growth for only a quarter due to fewer restrictions on mobility and businesses. However, pressure on the economy seems to be gradually rising as states tighten restrictions in view of rapidly rising cases and deaths.

Having said that, here are five risk factors that pose a threat to India’s economic recovery:

LOWER DEMAND AS COVID CASES RISE

The fact that state-imposed restrictions have failed to contain the spread of Covid-19 cases is the biggest economic risk at the moment. As cases continue to rise, consumer sentiments have turned negative, evident from a drop in demand for non-essential goods.

Demand for commodities like properties, vehicles and consumer durables are likely to stay muted till the situation improves. In case the Covid crisis worsens, the demand for such commodities will fall further, ultimately impacting economic recovery.

STRICTER CURBS

More states are now imposing stricter restrictions measures while some have announced a complete lockdown. This is likely to hurt non-essential economic activity, primarily affecting sectors like hospitality, tourism, aviation, real estate and even manufacturing to some extent.

Despite the imposition of strict curbs, most states are reporting a rise in daily Covid-19 cases. In such a scenario, lockdowns are likely to be extended further, leading to loss of crucial trade activity. This is likely to impact lakhs of smaller businesses and traders who have been forced out of action during the second wave of Covid-19.

Read | Explained: How Covid restrictions are hurting economy during 2nd wave

Meanwhile, there are also options being discussed to impose a nationwide lockdown in the wake of record rise in Covid-19 cases and deaths. While calls for a nationwide lockdown have been amplifying for the past few days, it will create a difficult situation for smaller businesses and MSMEs. If the government does announce a nationwide lockdown, it should also provide a concrete relief package to help vulnerable households and businesses.

SLOWER VACCINATION

India’s Covid-19 vaccination drive has been slow in many states due to shortage and wastages. The pace at which people are being vaccinated against Covid-19 at the moment could lead to a significant delay in lifting curbs, resulting in higher losses than initially estimated.

Multiple brokerages had earlier said the government has to ramp up the vaccination process to limit the economic losses during the second wave of Covid-19. At the moment, however, things do not seem to be heading in the right direction.

MORE SECTORS FEEL LOCKDOWN HEAT

Sectors like hospitality, tourism, entertainment and travel initially faced hurdles due to localised restrictions announced in some states.

However, more sectors are now feeling the pinch as lockdowns are getting stricter across most states. Real estate, construction, consumer durables, automobiles, aviation, transport and other ancillary sectors are feeling the pressure as lockdowns get stricter.

Also Read | Covid derails economy: 5 sectors that have been hit hard

Most of the above-mentioned sectors are yet to recover from the initial economic impact of the pandemic. The second wave could make matters worse if it goes on for a longer period than predicted earlier.

UNEMPLOYMENT, FALLING INCOME

There has been a sharp rise in the unemployment rate in April due to a decline in business activity and restrictions. Although the impact is not as widespread in comparison to 2020, the unemployment rate is rising fast, especially among informal workers.

The rise in unemployment among informal or gig economy workers lead to a sharp drop in household income among the poorer population, which could even impact demand for essential commodities like food.

India’s economy is already suffering due to the unavailability of employment opportunities. Economic recovery could face a serious productivity hurdle if the employment numbers do not go up in the next few quarters.

INFLATION

Rising inflation during the second Covid-19 wave is another threat to economic recovery. While food inflation could drop, the fact that core inflation remains high remains a concern for the Reserve Bank of India (RBI).

At a time when many people are likely to lose their jobs due to lack of economic activity, inflation could further impact the demand equation and ultimately slow down the country’s economic recovery.

Posted in: Business
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