Second Covid wave risks overwhelming India’s economic recovery

India’s second Covid-19 wave is spooking jittery consumers and threatening the country’s economic recovery, as regional authorities impose new lockdowns and curfews to slow the spread of the virus.

With India’s caseload far surpassing last year’s pandemic peak and a sputtering vaccine rollout, officials are under intense pressure to take steps to curb the growth of new coronavirus infections, hospitalisations and deaths.

But new restrictions on businesses and public activities risk undermining what was projected to be a robust economic rebound after one of the world’s sharpest pandemic-induced contractions last year.

This month IMF raised its growth forecast for India for this year to 12.5 per cent. But Gita Gopinath, the Fund’s chief economist, warned that the calculations predated the latest “quite concerning” wave.

“The next few months will be critical, as the renewed Covid surge challenges India’s immature recovery,” Oxford Economics, a research group, said in a note, citing possibilities including a “hard lockdown”, rising deaths and a faltering vaccination campaign as the biggest threats to growth.

India confirmed an all-time high of more than 152,419 new infections on Saturday and recorded another 800 Covid-19 deaths. Patients are already overwhelming hospitals in the hardest hit cities. 

In the face of the surge, Maharashtra, home to the country’s financial capital Mumbai, last week ordered the shutdown of most non-essential businesses and hard weekend lockdowns at least until the end of April. Several big cities, including the capital New Delhi and the IT hub Bangalore, have imposed night curfews.

Many Indians fear tougher restrictions lie ahead, with struggling service sector businesses questioning whether they can withstand another shock. 

Ritu Dalmia, a celebrated restaurateur who closed three of her six restaurants last year, called the surge “a disaster”. Her lunch business has halved in four days while a 10pm curfew in New Delhi has battered dinner demand.

“People are not stepping out any more,” she said. “There is a huge panic. This year will be a washout. How much can we survive and how long can we survive for?”

Jammu-based Sahil Mahajan, whose family’s interests include a car dealership and furniture business, said walk-in customers had declined sharply in recent weeks. “Any retail business is being pretty badly hit,” he said.

India’s economic indicators improved significantly in January and February, when daily new cases fell to about 10,000 a day. But the mounting stress is taking its toll, with an index of business activity tracked by Nomura registering its biggest drop in 12 months in the first week of April.

Economists do not expect a blanket national lockdown like last year, which they said should ease the long-term pain. Radhika Rao of DBS Bank said limiting curbs to sectors such as hospitality, rather than industrial activity or construction, would help restrict the fallout.

Many had hoped India’s ambitious vaccination drive to rein in new cases would create a supportive climate for robust economic activity. But the rollout has been unexpectedly sluggish.

India’s Serum Institute, the primary supplier of vaccines to India’s national rollout, has the capacity to produce about 2.4m doses a day. That will constrain the pace of inoculation in a country of 1.4bn people unless New Delhi approves the use of other jabs.

Many migrant labourers, traumatised after being stranded in cities by last year’s lockdown, have begun leaving cities like Mumbai and Delhi again.

Gurfan Sheikh, who runs a small workshop doing leatherwork for a collective run out of a large Mumbai slum, said his two employees, both migrants from across the country, had fled the city.

“Ten days ago I was doing OK, earning enough to feed my family. But since the lockdown was announced we’ve had to shut our shops,” he said. “How will they [employees] afford to live if I can’t pay them?”

Additional reporting by Andrea Rodrigues

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