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India today got the unwanted record of the reporting the highest ever daily COVID spike of over 310,000 cases. The healthcare infrastructure is under tremendous strain, people are dying due to the lack of oxygen, hospital care and medicines, and this has imparted greater uncertainty to the economic outlook.
A lot has to do with whether the pace of vaccination will outrun the spread and mutation of the virus. The central government has opened up the vaccination programme to everyone above 18 years and allowed state governments and the private sector to produce vaccines directly from the manufacture.
That the vaccines work is clear from data that is emerging from across the world. In India only about 4 of out every 10,000 people who received their second dose have been infected. A Financial Times analysis if data for 5 countries said that even as new waves came in, the rates of infection, hospitalization and deaths among the elderly who were vaccinated has been much lower than in the first wave. (Exclusive access for Pro subscribers here.)
Yet challenges remain in India’s vaccination programme as the pandemic continues to rage unabated. No doubt this is the right time to accelerate vaccination, but as Ravi Ananthanarayanan point out, “the initial period is likely to be a chaotic one, as we switch from one buying party, to multiple state governments and private parties entering the fray. There will be squabbling between state governments on the quantities they get, disputes on who will get it free and who will pay and how much, and a scramble among people wanting to get vaccinated.” Read more here our analysis on what needs to be done to make the vaccination programme a success.
In the meantime, as lockdowns get extended and more stringent, businesses are already beginning to bear the brunt. Companies such as Hero MotoCorp have temporarily halted operations. Migrant workers have again started to make the journey back home. Mobility indicators within big cities and states too show a sharp fall which will eventually lead to a drop in economic activity. Some of these showed up in our economic recovery tracker update earlier this week.
But how bad can it get? And what support should we expect from fiscal and monetary policy in case things worsen further? We explore these issues in this piece.
The good news is that unlike last year there are some mitigating factors, but the government needs to step up and offer support including extending some of its schemes and forbearance announced last year. We also analysed the case for GST exemption on COVID treatment here.
In the end, the best support the government can offer is to do all it can to accelerate the vaccination drive ambitiously. That’s the key to preventing a recurrence of a national lockdown and reviving the economy.
Investing insights from our research team:
Nestle: Is it right for your long-term portfolio?
Discovery Series: Deccan Cements merits a deeper look
Bhansali Engineering Q4: Spreads likely to moderate in near term; valuation fair
What else are we reading today?
Can China's buying help spur a recovery in gold prices?
Anti-China sentiment: India should seize the opportunity in textile exports
Technical picks: HCL Technologies, RCF, REC and PI Industries (These are published every trading day before markets open and can be read on the app)
Ravi Krishnan
Moneycontrol Pro
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