The latest wave of COVID-19 infections may have taken the economy back to June 2020

The latest wave of COVID-19 infections may have taken the economy back to June 2020
Rise in mortality rate among COVID patients in Mysuru has led to mass cremationsBCCL
  • The rate of COVID 19 infections in India is slowing down but mobility indicators are worsening.
  • Businesses have bourne the brunt of the second lockdown and are looking for relief.
  • The impact on the economy has so far been limited but the impact on demand is likely to worsen.
The Reserve Bank of India (RBI) estimates that the impact of the second COVID-19 wave on the economy has so far not been as severe as the first wave. However, the movement of people to shops, work, bus stations and other public places is only at half of what it was during the ‘pre-pandemic’ days — at par with mobility trends seen in June 2020.

"High-frequency indicators of the economy have continued to soften. Mobility indicators, in particular, have fallen to June 2020 levels."

CRISIL report dated May 17

People looking for restaurants, cafes, malls, and movie halls are down by more than half of what it was in January and February 2020, according to Google’s Mobility Report for India. Even essential services like the supermarket and pharmacies saw a dip of 23% as compared to the baseline.

“The biggest toll of the second wave is in terms of a demand shock — loss of mobility, discretionary spending and employment, besides inventory accumulation — while the aggregate supply is less impacted.”

Reserve Bank of India’s State of the Economy report

The number of daily COVID-19 cases crossed 400,000 for the first time on May 1 and continued to increase. It’s only been 10 days that the number of new cases coming in have been slowing down.

The lockdowns may be helping in part, but a government panel set up by the Department of Science and Technology under the Science Ministry of the Government of India predicts that it will be at least until July before the second wave subsides. And the third wave is expected to kick in six to eight months down the line.

Businesses want another moratorium to deal with the demand slump

Less mobility means less demand. And less demand means businesses end up bearing the brunt of the lockdown. The non-alcoholic beverages industry, led by giants like Pepsi and Coca Cola, is not likely to return to pre-pandemic levels this year, according to CRISIL.

"Beverages sales volumes will be adversely impacted in the peak season once again due to localised lockdowns and restrictions on movement to contain the second wave of the pandemic," said Nitesh Jain, the director of CRISIL Ratings. Last year, the nationwide lockdown and subsequent restrictions from April to September had a huge impact on demand during peak season. Sales in summer months account for two-thirds of Coca Cola's annual sales. And, this year, CRISIL claims that the cycle is likely to repeat itself.

“There are about 15 lakh traders in Delhi, who are providing employment to more than 35 lakh people. As per Confederation of All India Traders (CAIT), Delhi has lost a business of about ₹30,000 crore in the last 45 days,” said Praveen Khandelwal, secretary general of the CAIT, in a statement.

A survey conducted by Care Ratings of 305 businesses in India shows that at least 80% of the respondents expect consumer demand and investment demand to be severely impacted.


Even though the gross domestic product (GDP) growth outlook by most global and local agencies was pegged at above 10% for the financial year 2021-22, businesses expect it to be below 9% after the impact of the second wave. And their hope is that the RBI will step in with another moratorium to address the slump.

“MSMEs are faced with issues of labour shortages and escalating business uncertainty with a large set of them expecting business performance to worsen,” said the Care Ratings report dated May 13.

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