With the emergence of second Covid-19 wave in India, many experts predicted that the economic damage would not be as bad as the first wave in 2020. There were two primary reasons behind this assertion were:
- India had vaccines against the virus
- No nationwide lockdown was imposed
But the current situation is quite the opposite of what was predicted. India is struggling to vaccinate its vast population and strict lockdowns remain imposed in almost all parts of the country. As a result, the economic growth projections shared earlier have changed drastically. Even SBI, the country’s largest public lender, recently slashed its FY22 growth forecast.
Data on jobs, income, household income, consumer sentiment and demand show that the second wave has had a devastating impact on India’s economy, especially on poorer citizens and smaller businesses. Even rural areas that were a saving grace during the first wave have been deeply affected this time.
Rising unemployment has emerged as the biggest economic concern during the second Covid-19 wave as it has mostly affected the informal economy and poorer households. While no nationwide lockdown was announced this time, the local restrictions imposed across states have had an equally devastating impact on small businesses and their employees.
A quick assessment indicates that this second wave has impacted the growth of service sector and GDP. Auto sales have dropped, FMCG and electronics sales have been impacted. Passenger car sales have dropped by 10% as compared to March 2021 sales. COVID curbs has also impacted and slowed down manufacturing. The auto industry contributes around 50% of GDP. Textile and tourism which provides largest employment has slowed down significantly. As per some reports stores and retail outlets are already witnessing job cuts because of restricted movement and closures.
Construction work across various states have been impacted. Entertainment industry which was the last to be opened post the first wave has been immensely impacted with closure of theatres and all entertainment/ shooting hubs. Private schools have lost out on revenues too and there has been a big miss on structured teaching impacting the overall learning curve of the students. MSME and SME are struggling as they work on very low capital base and working capital.
The second wave has eroded the gains businesses made over the last few months. Many businesses in the country are again facing a crisis and sentiment has been disrupted across the board, according to the latest round of FICCI’s Business Confidence Survey.
Given the uncertainty, near-term growth expectations of businesses remain unknown. About 70% participants reported weak demand conditions as a bothering factor in the current survey as compared to 56% stating the same in the previous round. The corresponding number last year was 77%. “With household income being severely impacted and past savings already drawn down during the first wave of infections, demand conditions are expected to remain weak for longer this time around,” the survey said The first wave of the coronavirus pandemic had pushed many people below the poverty level and the second wave could make the situation worse, given the money people had to spend on healthcare.
