A tale of two waves

How India's economy is recovering after the second COVID wave.

  • Article   |
  • 07 October, 2021

India's second Delta-driven COVID wave earlier this year had a devastating impact on the country's healthcare system but its economic impact has been more nuanced.

2022 GDP growth: Double digit, Possible

India's second COVID wave led to a significant downward revision in GDP growth forecasts for FY22 with the range of analysts' expectations falling from 10.1% to 13.5% at the start of the year to 8.3% to 10.4% after the delta wave. However, if the country can avoid further lockdowns through the end of the year, double digit growth seems a real possibility.

COVID cases: Down, but not out

Daily COVID cases in India have dropped sharply from the peak of the Delta wave but they remain stubbornly higher than before the second wave at around 20,000 cases per day. The current caseload is much more geographically concentrated however with 70% new cases coming from the Kerala and Maharashtra - this may also reflect differences in the level of testing.

Third wave: When and how severe remain the question

While India is currently enjoying a relative easing in COVID cases, concerns persist about a possible third wave later this year. The recent experiences of the USA and UK have shown that it is too soon to put COVID in the rear-view mirror and risks to health and economic activity remain.

Vaccinate India: A work in progress

A major mitigating factor in any third wave will be the level of vaccination India can achieve. As Europe's experience shows, high vaccination rates can dramatically reduce hospitalisations and fatalities despite the surge of delta-driven cases seen in the region over the summer. Having administered close to 900m vaccine doses, over 19% of India's population is now fully vaccinated while over 50% has had one dose. Continued progress in delivering jabs will reduce the likelihood of future lockdowns. However regional disparities in vaccination could lead to uneven outcomes with only 10% of people in UP fully vaccinated compared to 70% in Kerala.

GST collection: Swift recovery

Collections of India's Goods & Services Tax (GST) made a robust recovery following the second wave and were up close to 23% YoY in September 2021. The absence of nationwide lockdowns and greater business preparedness has meant the second wave was far less disruptive to economic activity than the first.

Inflation: In control, at least for now

High inflation in India had threatened to be a drag on economic recovery, eating into depressed household incomes. However, inflation rates as measured by the Consumer Price Index (CPI) have continued to moderate over the summer from a high of 6.3% to 4.4% most recently.

Industrial activity: Manufacturing and Electricity up, Mining still down

Industrial activity in India saw far more modest declines during the second wave and both manufacturing and electricity are now higher than pre-COVID levels. However, mining activity remains depressed and fuel consumption remains lower than it was before the second wave.

Logistics: On move, both people and goods

Lower fuel consumption is reflected in logistics data as air freight, railway bookings, and e-way bills remain below their pre-second wave peaks. However, FASTag transactions are back to COVID-era highs reflecting increased vehicle movements as well as rising adoption of digital payments.

Manufacturing and Service PMI: On a positive note

On a more positive note the Purchasing Managers Index shows both manufacturing (53.7) and services (55.2) are back in expansion mode following a far shorter and shallower contraction than the first wave.

Exports growth: Breaking records positively

India's export bandwagon continued to roll on largely unaffected by the second wave rising to hit 2.5 lakh crore Rupees in September.

UPI transactions: Up, Up and Up again

The digitalisation of India's economy continues apace with UPI transactions exceeding 3.7bn in volume and 6.5 lakh crore rupees in value for the most recent month's data.

Consumer confidence: All time low, Still 

While business sentiment has shown a marked upswing, Indian consumers are comparatively pessimistic as households recover from the multifold impact of the second wave. The current situation index remains at all time lows of 48.6 but the future situation index did see a modest uptick in July.

Workplace mobility: Getting back to pre-second wave mark

With a falling case count and rising vaccination rates Indians are slowly getting more mobile - spending less time at home and more time traveling to their workplaces. Despite fewer restrictions in the second wave Indians took precautionary measures to remain safe resulting in a similar spike in time at home. That rate has continued to fall each month but is still twice the pre-pandemic level, perhaps reflecting continued caution and a longer term shift to work from home.

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