Slow vaccinations, prolonged lockdowns weigh on India's growth

States with higher dependency on contact-based services and slow on vaccination remain vulnerable to rising infections even though positivity rates are falling and recoveries have overtaken infection, ratings agency Crisil said.
"States with higher dependency of output on contact-based services, and slower pace of vaccination coverage will remain more vulnerable... States/union territories such as Karnataka, Kerala, and Delhi, which are some of the most affected during the second wave and have also seen large declines in mobility during this period, have higher dependency on contact-based services in their output, making them more vulnerable," Crisil said.

In contrast, agriculture-intensive states of Andhra Pradesh, Madhya Pradesh, Punjab, and Rajasthan may be cushioned by the second wave shock.


Meanwhile, the delay in vaccinations and prolonged lockdowns is hurting India's economic growth on a larger scale than expected before, Barclays said in a note. The British lender has cut its fiscal 2022 GDP forecast by 80 basis points to 9.2% citing slow pace of vaccinations and prolonged lockdowns and warned that a third wave of the pandemic will puncture growth further to 7.7%. One basis point is 0.01 percentage point.

Barclays' base case expectation is that the lockdowns will last only until the end of June 2021, in which case the economic losses will amount to $74 billion. Barclays has now revised its GDP growth estimate twice from a peak of 11% before the outbreak of the second wave.

"The slow vaccination drive may pose medium-term risks to growth, especially if the country experiences a third wave of Covid-19 cases,” said Rahul Bajoria, India economist at Barclays. “In a more pessimistic scenario in which the country is hit by a third wave of Covid-19 infections, we estimate that the economic costs could rise by at least a further $42.6 billion, assuming another round of similarly stringent lockdowns are imposed for eight weeks. Under this pessimistic, ‘bear case’ scenario, we estimate GDP growth would be lowered by a further 150 basis points, dragging FY2021-22 growth down to 7.7%."

As of May 23, daily vaccinations reduced to around 980 per million people from around 1,455 per million a week earlier, less than half of the world average of 3,564 per million even as localised lockdowns have softened high-frequency economic indicators, Crisil said.

Though the Covid-19 infection curve is on a downward momentum because of a decline in daily cases, indicating the country is off its peak infections in the second wave.

Daily new cases now average 250,000, down from 330,000 in the week ended May 16, even though some states such as Tamil Nadu, Odisha and Assam are still under a strong viral grip, with increase in cases over the week.

"Like the first wave, the shock to output in states will be a function of the extent of Covid-19 infections, degree of lockdowns/restrictions announced, and structural composition of output. However, unlike the first wave, the shock to output will be lesser, given the lower intensity of restrictions (compared with the nation-wide lockdown last year) and adaptability of businesses and people to live with the virus. The duration of restrictions is likely to be longer as states will exercise caution after the lethal second wave," Crisil said.

Large states like Maharashtra, which have a relatively higher share of contact-based services in its gross value added (GVA), are more vulnerable to output shocks as restrictions continue, the ratings agency said.