India

Second wave knock-back

Spring’s Covid outbreak has wreaked havoc

The massive second wave of Covid that swept across India this spring destroyed any chance of a rapid rebound and economic recovery. Gross domestic product rose 1.6% from a year earlier in the three months ended March, just before the deadly second wave. The GDP growth was actually approximately 0.5% higher than most expectations. This exceptional growth spurt in the first few months of 2021 was largely due to pent-up demand for everything from mobile phones to cars after the long and hard nationwide lockdown at the end of 2020.

Now, after a bad second wave, most economists downgraded their forecasts in recent weeks – which were running at about a 12% GDP growth rebound - to factor in local lockdowns slowing activity, lack of trade at India’s major commercial hubs, and the slow pace of inoculation. Estimates are now at around 10% and just below. Abhishek Gupta, an India economist, told Bloomberg recently: “Greater vaccination coverage, increased public investment and improved export demand are likely to be key factors supporting a stronger rebound.”

One question as we go into the summer will be whether the country is able to unlock as one or if there will be regional lockdowns. And, if so, whether these will affect major agricultural production areas, industrial areas or areas of high domestic consumption. Many local economists think that consumer spending will not rebound fast – a rise in unemployment and a lot of uncertainty about the future mean people may keep their wallets shut. Airlines and hospitals are getting some central government subsidies, but not much else. It’s sink or swim for most of the economy while there have been massive job losses in retail, transport and construction among other badly affected sectors.

The great hope of Indian economists is the still robust export sector. Led by engineering and machinery, gems and jewellery, and pharmaceuticals, exports grew more than 60%year-on-year to a record $34.5bn in March and $32bn in April, the first month of fiscal year 2021-2022, according to official data. Consequently India’s trade deficit is now the lowest since September 2020, when it was $2.7bn (helped by big falls in both oil and gold imports into India too). It is also the case that services exports also rose throughout the first six months of 2021 too – by 15.4% according to the New Delhi government.

Along with the sectors already mentioned above that are doing well in terms of exports, the government also predicts that this year will see strong export growth in other sectors including jute, pharmaceuticals, carpets and textiles, handicrafts, leather, electronic goods, oil meals, cashew, engineering, petroleum products, marine products and chemicals. This export growth partly reflects rebounding global demand. The task now for India is to keep the economic momentum at home and in terms of exports while getting the country inoculated to avoid a disastrous third wave that could knock the national economic rebound off course. ●

India: Major exports, 2020

Category % of total exports Engineering goods 22.74

Drugs/Pharma 3.13 Oil/petroleum 1.9 Chemicals 0.95 Rice 0.50 Plastic and linoleum 0.35 Marine products 2.55 Others 26.45 Total 100

Source: Indian Government Statistics