Surge in corona threatens India’s economic revival

19 April, 2021 12:00 AM printer

NEW DELHI: Gaurang Mehta, who owns a restaurant on the outskirts of Mumbai, is worried about the future of his business.

Things were just starting to pick up after it was hit hard by nationwide lockdown restrictions in India last year. It therefore came as a huge shock to him and many other business owners when the local government imposed fresh curbs this month amid a record surge in Covid-19 infections. These include only allowing restaurants in the state to offer deliveries, report agencies.

“I won’t be able to pay the rent and I won’t be able to pay salaries,” says Mr Mehta. “Our problems will only increase.”

India’s financial capital, Mumbai, and the wider state of Maharashtra – by far the worst affected in terms of the latest Covid-19 infections – has introduced some of the strictest curbs. In the state that generates 15 per cent of India’s gross domestic product, most citizens can only leave home to work in essential services or to carry out necessary tasks. Most establishments, including shopping malls and cinemas, are shut once again until at least May 1.

Several other parts of the country have also introduced new measures to tackle the spread of the virus, with weekend curfews now in place in the nation’s capital, New Delhi. India on Saturday recorded a record daily high of 234,692 new coronavirus infections, according to data from the country’s health ministry. This brings total Covid-19 infections to date to more than 14.5 million.

Economists say that the massive second wave of the virus in India poses a threat to the country’s economic recovery.

“Numerous restrictions have been imposed by several states to curb the sharp rise in virus cases, which could have an impact on the economic activity and slowdown the recovery anticipated,” says Siddhartha Khemka, the head of retail research at Mumbai-based Motilal Oswal Financial Services.

India only recently emerged from a pandemic-induced recession after the economy shrank by 23.9 per cent at the height of movement restrictions in the April to June quarter last year, followed by a further contraction of 7.5 per cent in the following quarter as restrictions started to ease. The latest official numbers showed that India’s GDP returned to growth of 0.4 per cent in the quarter to the end of December. But the impact of the crisis pushed many companies to the brink, with smaller firms and sectors including tourism and aviation hit particularly hard.

In a report published last week, Barclays said the various local Covid-19 curbs being imposed in India could cost the economy $1.25 billion a week and shave 140 basis points off GDP growth for the current quarter.

Meanwhile, ratings agency Moody’s Investors Service has warned that the second wave of infections in India poses a credit-negative threat.

It “presents a risk to our growth forecast as the virus management measures will curb economic activity and could dampen market and consumer sentiment”, according to Moody’s.