“We will see a more drawn out recovery, so the V-shaped recovery we saw last year is going to be more U-shaped and you will see that across indicators,” said Yuvika Singhal, economist at QuantEco Research.
Demand is unlikely to respond to the easing of curbs as sharply as last year as the most severe impact has been on the urban middle class and upper income sections, economists said.
States to Take Longer to Unlock
Also, rural India has been hit harder this time.
Besides, last year, the combination of pent-up demand and the festive season drove a sharp recovery. But this year, the severe second wave that has impacted millions and the possibility of a third wave of the pandemic is likely to keep a lid on consumer sentiment.
“Based on current trends, daily cases will fall below 1 lakh by the end of June but the scars of the impact will linger in the minds of people, both in rural and urban areas, for quite some time, which will translate into their consumption behaviour,” said Sunil Kumar Sinha, principal economist at India Ratings and Research.
The relaxation of various curbs imposed by the states will also take longer this time, which will keep the recovery muted.
“In their third month now, they are being further extended (e.g., in Maharashtra, Bihar, and Delhi) as states have been cautious in reopening, given the devastating impact of this wave, uncertainty of vaccine supply and possibility of a third wave,” ratings agency
said in a report on Monday.
Mobility Curbs may Stay till June
It will take more than a quarter for the economy to revive to pre-pandemic levels, Crisil said.
The higher prevalence of cases has resulted in household savings being consumed by medical expenses, which will further dent consumption. India’s per capita GDP fell 8.2% on-year to ₹99,694 last fiscal. “Consumer demand will be driven by sentiment, which we expect will be subdued for a prolonged period,” said ICRA chief economist Aditi Nayar.
Considering March-April levels as normal, with some mobility restrictions likely to remain till June end, the turnaround might come only by July or even August, said Rahul Bajoria, chief India economist at Barclays.
The government is optimistic about an earlier recovery. Chief economic advisor KV Subramanian told ET on Friday he expects a turnaround by June end.
The latest high-frequency data indicates the economy may have bottomed out in May, but the climb back may take a while. The Purchasing Managers’ Index (PMI) for services dipped to 46.1 in May from 54 in the previous month while that for manufacturing moderated to 50.8 from 55.5 in April.
A reading below 50 on this survey-based index shows contraction. Although manufacturing PMI dropped in May, it stayed within expansionary territory through what experts consider the trough of the second wave.
Economists have called for more support for vulnerable sections of the population and sectors of the economy. According to Sinha, there was a case for direct income transfers and providing free food grains to the worst-affected sections as the rural employment guarantee scheme may not be as effective in supporting incomes due to the spread of infection. Prime Minister Narendra Modi extended the programme to provide free food grains to 800 million people until November in his address on Monday.
A person contracting Covid-19 would be unable to perform physically intensive work for about two months “and if that person is the breadwinner of a household, then support measures like income transfers and free food grains will be needed,” Sinha said.