NEW DELHI: The second wave of pandemic in India, which is worsening day by day, could cost the country dearly if it does not peak in May, said economists and analysts at ratings agency S&P.
According to them, in a severe scenario, i.e., if the second wave peaks in late June instead of what some believe to be May, Indian economy will lose $210 million or approximately Rs 1,575 crore worth of output daily.
In our severe scenario, mobility is estimated to be 50-60 per cent of normal levels in May; it recovers thereafter, but only normalizes by December. Eventually, the pandemic could end up knocking off 2.8 percentage points from the estimated GDP growth rate for FY22, S&P said.
“Our moderate scenario suggests a hit to GDP of about 1.2 percentage points. This means full-year growth of 9.8 per cent for fiscal 2022. This compares with our baseline forecast of 11 per cent growth for the period, set in March 2021. This would see a recovery taking hold again later in the year. In the severe scenario, the hit is 2.8 percentage points, with growth of 8.2 per cent,” warned S&P.
India’s second Covid-19 wave turned even grimmer on Wednesday as both daily cases and deaths surged to new peaks. The country reported over 4.12 lakh new cases, 10,000 higher than the last peak, while the day’s death toll climbed close to the 4,000-mark at 3,980.
The central government has so far avoided rolling out another nationwide lockdown, given this would be unpopular and economically costly. However, authorities have already imposed local lockdowns that cover much of the country, including economic centres Mumbai, New Delhi, and Bangalore.
Hospitals across the country are inundated with patients with many dying on streets as they are not able to get any medical attention. With cases surging and vaccinations slowing down, there seems to be no respite from the virus.
A prolonged health crisis would hurt banks’ asset quality more adversely, S&P warned. It estimates 11-12 per cent of loans in Indian banking system to turn weak in case of moderate to severe scenarios. The corresponding credit cost to banks will be 220-240 bps.
Besides, the lack of availability of labour and supply chain bottlenecks may further crimp the cash flows of companies. Corporates, though better positioned than last year, the slowdown may still hit their credit standing.
Sectors such as commodities and automobiles, which were among the more severely affected by that initial stream of infections and associated lockdown measures, recovered strongly in the second half of fiscal 2021.
“The automobile sector should see lower demand over the next two to three months amid the continued restrictions on travel. Consumer retail, another key laggard of fiscal 2021, will likely continue to underperform. Sectors such as telecom, pharmaceuticals, and information technology, which were unaffected or even continued to grow in fiscal 2021, should remain resilient,” the rating agency said.
Ebitda for rated Indian corporates in the fourth quarter of fiscal 2021 in aggregate will likely be about 35 per cent higher than the third quarter of fiscal 2020, the last normal quarter before Covid struck.
Govt fiscal math
The global rating agency said in both the moderate and severe downside scenarios for the Indian economy, there is a risk that the fiscal deficit would be higher than their forecast 11.4 per cent of GDP this year, which could push the debt stock slightly higher still.
“The Indian government’s fiscal position is already stretched. We estimate the general government’s fiscal deficit to have been about 14 per cent of GDP in fiscal 2021, driving its net debt stock to just over 90 per cent of GDP,” it said.
The rating agency, however, did not make any changes to India’s sovereign ratings.
