Second wave of COVID-19 could bring down GDP growth to 8.2% if cases peak by June-end, says Crisil

India GDP is expected to shrink by a slightly larger margin of 8 percent for the full fiscal year.

Rating agency Crisil on May 10 said that India's GDP growth rate could drop to single digits or around 8.2 percent in 2021-22 (April-March) if the second wave of the COVID-19 pandemic reaches a peak number of cases by June-end.

The rating agency had projected India's GDP to grow 11 percent in 2021-22 (April-March) at the beginning of the current financial year. It added that in case the COVID-19 pandemic reaches a peak number of cases by May-end, the GDP growth will fall to around 9.8 percent.

As per official estimates, the economy contracted by 7.6 percent in 2020-21 because of the national lockdown. There have been a slew of downward revisions in growth estimates after the emergence of the second wave, which has overwhelmed the healthcare apparatus and also led to localised lockdowns across the country.

In its report, Crisil said the impact of state-announced curbs is showing up across high-frequency indicators, including retail and workplace mobility, power supply, GST e-way bill collection, and power supply, which are trending down.

The country's second wave of the COVID-19 pandemic continues to make new peaks with every passing day, as daily cases near the four lakh level for several days now. The seven-day average for new cases added in 24 hours stands at around 3,91,008 cases currently.

The rating agency added that while restrictions on people's movement and commerce are less stringent when compared to the first wave, they are increasing across the country as rural cases are slowly rising.

The agency said that the country faces two challenges, including the spread of the second wave and vaccination. On vaccination, Crisil said that India ranks lowest among fully vaccinated populations. It expects half of India's population to be vaccinated by October.

The rating agency added that India could learn from other countries globally that have been through second and third waves.

"Many advanced economies that saw a resurgence in late 2020/early 2021 clamped down with renewed restrictions, some more stringent than the first time around (e.g., Germany, the United Kingdom)," it said, adding that as people and businesses learned to live with the virus, economic activity was less impacted.

Crisil said that India Inc’s revenue growth, which the rating agency had earlier projected at 15 percent for fiscal 2022, could fall to around 10-12 percent in case the second wave of COVID-19 reaches peak cases by June end.

"Rising costs could pose headwinds to companies as they recover in specific sectors," the rating agency said.

Crisil in its report added that currently, the manufacturing sector has remained above the 50 expansion mark despite recent regional lockdowns and restrictions.

As the coronavirus infections spread to rural areas, where movement restrictions are lower and the number of people getting vaccinated is also lower, manufacturing could take a hit going forward.

The rating agency said that about 10 percent of GDP and workforce are the most vulnerable because of the reliance on contact-based services, but added that the second wave will have a less severe blow on employment.

Monetary policy will remain accommodative, helped by food-led moderation of headline CPI inflation which was projected to cool down to 5 percent in 2021-22.

However, it called out fiscal policy to give more attention to the urban poor and the services sector, which are bearing the brunt.