Just two weeks ago, the International Monetary Fund upgraded India’s economic growth forecast to 12.5% -- the quickest rate among major economies. Now, as Covid-19 cases surge the most globally, that bullish view is looking increasingly in doubt.


In Delhi, India’s political capital, the streets are mostly empty and the markets nearly deserted with almost all shops closed in response to curbs put in place by the local administration to fight the pandemic. The scene is not so different in Mumbai, the financial hub that accounts for 6% of the national output.

Yet for now, Prime Minister Narendra Modi is shunning a nationwide lockdown and encouraging states to keep their economies open. And for that reason, economists are signalling risks to their forecasts, but not tearing them up all together just yet.

“This second wave of virus cases may delay the recovery, but it is unlikely in Fitch’s view to derail it,” the ratings company said in an April 22 statement. It stuck to its 12.8% GDP growth forecast for the 12 months through March 2022.

The Reserve Bank of India this month also retained its growth estimate of 10.5% for the current fiscal year. But Governor Shaktikanta Das said the surge in infections impart greater uncertainty and could delay economic activity from returning to normalcy.

High-frequency data are already pointing to a deepening contraction in retail activity in the week through April 18 relative to its pre-pandemic January 2020 level, said Bloomberg Economics’ Abhishek Gupta. That’s a key risk for an economy where consumption makes up some 60% of gross domestic product.

Activity Hit

“Localized containment measures will act as a drag on growth,” said Teresa John, an analyst at Nirmal Bang Equities Pvt. in Mumbai, given that 10 Indian states account for about 80% of the country’s Covid-19 cases contribute nearly 65% of the national output. Still, John left her “conservative” growth estimate unchanged at 7% for the current fiscal year.

The reluctance by economists to revisit growth forecasts just yet possibly stems from expectations for the crisis to blow over soon. Fueling that confidence is a vaccination drive that’s covered more than 100 million people of the nation’s over 1.3 billion total, besides the promise of continued support from fiscal and monetary policymakers.

“While the rapidity with which cases are rising is high, it is also expected that this wave will be relatively short lived,” said Kotak Mahindra Bank Ltd.’s Upasna Bhardwaj, who is among the few to have downgraded the economy’s growth forecast -- by 50 basis points to 10% for the current year. “Nonetheless, uncertainty remains,” she said.

That uncertainty doesn’t look to be going away in a hurry, with India reporting record 3,49,691 new coronavirus cases and 2,767 deaths on Sunday. With almost 17 million cases in total, it is the second-worst affected nation globally, lagging only the US Bloomberg’s Virus Tracker shows that only around 11 out of 100 people in India have received a vaccine dose.

While the outbreak has overwhelmed the nation’s hospitals and crematoriums, it’s also hit consumer confidence in an economy that was only beginning to recover from an unprecedented recession last year.