Second Covid-19 wave may leave a bigger dent on GDP: Reports

India could be staring at a bigger economic toll due to the severe second wave of the pandemic than initially estimated, following stringent lockdowns imposed by states, according to research reports released on Tuesday. Slow vaccinations and the uneven easing of curbs by states will likely weigh on recovery.

“Even as India’s second Covid-19 wave starts to recede, the underlying economic toll now appears larger than we expected,” Barclays said in a report released on Tuesday.

It expects a $74 billion (Rs 5.4 lakh crore, 2.4% of GDP) hit on the economy in nominal terms, almost twice the $38 billion (Rs 2.8 lakh crore) it had estimated earlier.


“The economic costs of the recent surge in cases are rising rapidly,” it said, attributing the increase to more stringent restrictions implemented to contain the outbreak.

Almost 90% of India’s GDP is under lockdown-like restrictions apart from night curfews in other states, JM Financial said in a report on Tuesday. An SBI Research report, also released on Tuesday, said the loss in first quarter will be Rs 6 lakh crore, up from Rs 1.86 lakh crore estimated in an April 29 report.

It expects a real GDP loss of Rs 4-4.5 lakh crore and 10-15% growth in the June quarter against the RBI forecast of 26.2%. To be sure, nominal losses are still about half the Rs 11 lakh crore posted in the first quarter of last year when a nationwide lockdown was in place.

Experience elsewhere suggested a lower impact to GDP from declining mobility in the second round of the infection, said SBI Research.

“However, we believe in this wave our health crisis has overwhelmed us. And hence the impact on GDP in the second wave will be more from health channel than the mobility channel,” SBI group chief economist Soumya Kanti Ghosh said in the report.

The situation has reverted to what it was a year ago. “High-frequency data, including fuel consumption, electricity consumption, GST e-way bills, and mobility indicators, all suggest that activity has retreated back to May-June 2020 levels, when severe restrictions were still in place and economic losses were quite high,” said Rahul Bajoria, Barclays’ chief India economist, in the report. The impact is greater because the pandemic has “hit the country’s more affluent, city-dwelling, consumer population hard”.

Barclays lowered its growth forecast for FY22 to 9.2% from 10% earlier and said the weekly economic cost has increased to about $8 billion in May from $5.3 billion in the last two weeks of April.

SBI Research also sees FY22 growth in single digits against its earlier projection of 10.4%, although it did not provide a specific number.

Daily fresh cases fell below 200,000 for the first time since April 14, but states are likely to be cautious in opening up. “Just as the move into lockdowns was haphazard and heterogeneous across states, the exit is likely to be similarly chaotic,” Nomura said in a note.