Double-whammy for India's economy as Covid spreads its tentacles

India's economy is at crossroads yet again. The Covid-19 pandemic triggered by Chinese-born novel coronavirus took an incalculable toll on the country's economy in the last financial year. With the Narendra Modi government imposing nationwide lockdown, the world's strictest, biggest and longest one, in the last week of March 2020, the economy slipped into negative territory and contracted by a staggering 24.4 per cent during April-June 2020.

It was the worst economic contraction in India's history as it wiped away nearly a quarter of the country's GDP. Though economic activity picked up subsequently as the Centre gradually lifted lockdown curbs, the economy shrank again in the second quarter (July-September 2020) period, thus pushing India into a technical recession. Contraction in any economy for two consecutive quarters is considered as recession. But the contraction in that quarter was lower at 7.3 per cent compared to the preceding three-month period.

However, the economy limped back into the zone green in October-December 2020 quarter. Though the GDP growth was mere 0.4 per cent in those three months, a positive growth was seen as the indicator that the economy was out of the woods. Positive macroeconomic indicators in the subsequent months (January, February 2021) also strengthened this view. Global rating agencies and international agencies like the World Bank also projected double digit growth for India in FY22.

But things turned topsy-turvy for the country yet again as the second wave of the Covid-19 pandemic started spreading its tentacles in the second week of March this year. Sadly, the Covid 2.0 turned out to be more dangerous than the first avatar. As a consequence, India's daily Covid count topped the world's list, crossing the four-lakh mark. The daily Covid death toll also went up, crossing the 4,000 mark.

Though total daily cases have recently come down a bit to below four-lakh mark, deaths continue to hover over 4,000. These numbers show the intensity of the second wave. No surprise that State after State imposed either complete lockdowns or curbs to rein the Covid 2.0 as Centre opted for localised containment strategy.

Shortage of key medicines, oxygen, hospital beds and vaccines aggravated the situation. Despite being a global hub for pharmaceuticals and vaccines, India failed to provide adequate quantities of medicines and vaccines to its population. This failure will take a big toll on India's image globally. But the damage to the economy seems to be far bigger.

Global rating agency Moody's recently cut India's growth forecast for FY22 to 9.5 per cent from 13.7 per cent earlier. Its rival S&P also reduced the forecast to 9.8 per cent from 11 per cent while the UN pegged the GDP growth at 7.5 per cent in 2021. Going by the way the second wave is inflicting damage in rural areas and the talk of experts about the threat of Covid 3.0 these projections appear optimistic. India now stares at a bigger economic crisis.