Moody’s: Economic impact of second wave softer, may be limited to June quarter


The economic impact of India’s second Covid-19 wave is likely to be restricted to the June quarter and is expected to be softer than that of the first wave last year, Moody’s Investor Service said on Wednesday.

Centralised vaccine procurement will support recovery if it boosts inoculation coverage, Moody’s said in a note on India. It expects economic activity to accelerate in second half of the year as the pace of vaccination picks up.

It pared the growth forecast for calendar 2021 to 9.6% from 13.9%. Last month, Moody’s had cut the fiscal year 2021-22 growth estimate to 9.3% from 13.7% projected earlier. Calendar 2022 growth is seen at 7%.

“We assess the overall economic effect of the second wave to be softer than that during the first wave of the pandemic last year…,” Moody’s said.

‘Consumers and Businesses have Adapted’

But “delivery of and access to vaccines will determine the durability of the recovery”, it added. “The virus resurgence adds uncertainty to India’s growth forecast for 2021; however, it is likely that the economic damage will remain restricted to the April-June quarter.”

India’s economy contracted 24.4% in the June quarter last year.

Moody’s said restrictions during the second wave have been more targeted, localised and less stringent. Consumers and businesses have adapted too, it said, explaining the softer impact on the economy despite the second wave being very severe.

“The second wave has mainly affected aggregate demand, in contrast to last year when the national lockdown also constrained supply,” Moody’s said. High-frequency data also indicated that the economic impact of the second wave occurred mostly in April and May, it added.

Moody’s said economic activity had suffered as the pandemic was severe in economically significant states. Ten states accounted for 75% of total confirmed cases, with the worst hit being Maharashtra, Karnataka and Kerala, it said.


Faster vaccination is key to restricting losses to the ongoing quarter and sustaining recovery, Moody’s said. As of the third week in June, only about 16% of the population had received one dose; only about 3.6% had been fully vaccinated, it said.

The pace of recovery will also depend on the strength of the recovery in private consumption, which may have been hampered by the financial hardship faced by low and middle-income households.

Over the past three days, India has vaccinated nearly 20 million people, including a record 8.6 million on Monday.

Rural demand, which has remained resilient, will continue to be supported by strong agricultural production, higher procurement prices for the 2021-22 season and support to the rural employment scheme, Moody’s said. “Surging peak power demand and electricity generation also suggest a rebound in industrial and commercial activity,” the company said.


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