April 23, 2021

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Indian Economy Finds Itself On The Edge Amid Second Covid-19 Wave

2 min read

One-Two Punch To Contact Intensive Services

In the services sector, business is already starting to see a slowdown. Sectors most at risk from a second wave — hospitality and transportation services — account for about 5.7% of GDP.

While footfalls at the start of the year were close to 60-70% of pre-covid levels, they have fallen by 40% since then, said Kumar Rajagopalan, CEO of the Retailers Association of India, pointing to the restrictions placed in Mumbai.

Even before the new restrictions were announced, Mumbai’s municipal corporation was conducting randomised Covid tests at crowded locations. The move deterred visitors, bringing retailers back to square one, Rajagopalan said.

“In other states, the impact is not as much yet but the association remains in a wait-and-watch mode,” Rajagopalan said.

Across the restaurant sector, the impact is similar.

Pranav Rungta, head of the Mumbai chapter at the National Restaurant Association, said business has reduced to 15-20% of pre-covid times compared to 75-80% in January and February. This will likely fall further as in-person dining is restricted starting this week.

Rungta added that the uncertainty and volatility will also make consumers conservative about spending once again.

While much of the impact is still limited to Mumbai and Maharashtra, footfalls in Bengaluru and Delhi are likely to have dropped by 10-15% compared to what they were in the early part of the year, Rungta said.

For the film theatre business, which was among the last to recover even from the first wave of Covid cases, new infections will mean a fight for survival.

Nitin Datar, vice president of the Film Federation of India, said that the position of single-screen theatres amidst the second wave is even worse than it was in the first wave. The duration of the pandemic has led to the exhaustion of all resources and the new curbs will push a number of single-screen theatres closer to bankruptcy, Datar said.

Assessing The GDP Hit?

Since the second wave intensified towards the end of March, an impact on January-March GDP growth is unlikely, said Varma and Nandi who estimate the economy will expand 1% year-on-year in the final quarter of the financial year.

“However, if the second wave worsens further, causing more state-level restrictions and a moderation in contact services, then the sequential momentum in Q2 will likely be close to zero or marginally negative as compared to the previous forecast of 0.5% on a quarterly basis,” the Nomura economists added.

The tipping point, according to Barua, will come when there is a problem of hospital beds or oxygen supply because that would indicate that containment measures have to be tightened, he said. With the ramp-up in capacity post the first wave, that seems unlikely, Barua said.

Pallavi Nahata
2021-04-04 23:56:37

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