2nd COVID Wave May Derail India's Budding Recovery: S&P Global
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2nd COVID Wave May Derail India's Budding Recovery: S&P Global

By IndraStra Global News Team

2nd COVID Wave May Derail India's Budding Recovery: S&P Global

India's second COVID wave could knock off as much as 2.8 percentage points from GDP growth in fiscal 2022, derailing what has been a promising recovery in the economy, profits, and credit metrics in the year to date. 

On top of that, the limited vaccination coverage and exposure to more infectious COVID variants may mean this infection wave peaks as late as June, with significant effects on credit and funding conditions.

Currently, the Indian government is responding to the latest outbreak with a series of localized lockdowns while avoiding a nationwide lockdown, which would have more adverse economic implications.

The Indian recovery had been so vigorous across many measures, particularly in the last quarter of fiscal 2021 (year ending March 31, 2021), and yet the latest outbreak has escalated rapidly. 

Despite being the largest vaccine manufacturer in the world, India's vaccination rollout to the country's very large and largely rural population has proven challenging. The combination of a more infectious COVID variant and limited vaccination coverage will mean potentially higher infection cases.

The government has 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 Mumbai, New Delhi, and Bangalore.

The scope of lockdowns affects mobility and is indicative of the strength of India's recovery. The agency said under severe scenarios new infections may peak in late June 2021. And, under moderate scenario posits that infections peak in May, it added.

The scenario projections assume that initial shocks to private consumption and investment filter through to the rest of the economy. For instance, lower consumption will mean less hiring, lower wages, and a second hit to consumption, the note said. The severe scenario, which assumes hits to economic growth and infrastructure sector cash flows, presents more downside risks. Leverage remains elevated

The Indian government's fiscal position is already stretched. The general government deficit was about 14 percent of GDP in fiscal 2021, with a net debt stock of just over 90 percent of GDP.

NOTE: Last year in September, S&P Global Ratings affirmed India’s sovereign rating at BBB- with a stable outlook. 

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DISCLAIMER: The views expressed in this insight piece are those of the author and do not necessarily reflect the official policy or position of IndraStra Global.