The second wave of COVID-19 infections presents a risk to India’s growth forecast as the reimposition of measures to curb the spread of the virus will hit economic activity, but a double-digit GDP growth is likely in 2021 given the low level of activity last year, Moody’s said on Tuesday.
Moody’s expects that given the focus on ‘micro-containment zones’ to deal with the current wave of infections, as opposed to a nationwide lockdown, the impact on economic activity would be less severe than that seen in 2020, according to a PTI report.
“India’s very low coronavirus death count (only about 1,70,179 deaths have been recorded as of April 12) and relatively very young population also help mitigate risks. GDP is still likely to grow in double digits in 2021 given the low level of activity in 2020,” Moody’s Investors Service said.
In its commentary on India, Moody’s said the countermeasures to combat the second wave – some of which are due to remain in place at least until the end of April – risk weakening the economic recovery. However, the targeted nature of containment measures and rapid progress on vaccinating the population will mitigate the credit-negative impact.
In February, Moody’s had bettered India’s growth projection for the current fiscal year, which began on April 1, to 13.7 per cent as economic activity gathered pace. For the calendar year 2021, Moody’s has projected economic growth rate at 12 per cent.
As per official estimates, the Indian economy contracted 8 per cent in 2020-21 fiscal year, which ended on March 31, 2021.
“The second wave of infections presents a risk to our growth forecast as the reimposition of virus management measures will curb economic activity and could dampen market and consumer sentiment,” Moody’s said.
Retail and recreational activity across India had dropped by 25 per cent as of April 7 compared with February 24, according to Google mobility data. This was mirrored in the Reserve Bank of India’s March consumer confidence survey which showed a deterioration in perceptions of the economic situation and expectations of decreased spending on nonessential items, it noted.
Moody’s said vaccination will be a key element in controlling the second wave of COVID-19 as the authorities balance virus management against maintaining economic activity.