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Economy May Have Shrunk 12% In June Quarter Due To Covid Second Wave: Report

Indian economy’s 12 percentage point contraction in June quarter amid covid second wave may not lead to a sharp V-shaped recovery due to weakened consumer sentiment, says UBS Securities India

The Indian economy may have contracted 12 per cent in the June quarter due to lockdowns imposed by the states in April and May to contain the second wave of the deadly Covid-19 pandemic, according to a report by UBS Securities India. The economy had contracted by 23.9 per cent in the same quarter last fiscal.

The economy had contracted by 7.3 per cent in financial year 2021, marking its worst contraction on record, as the lockdown announced by the centre last year to check the first wave of the virus brought the economy to a grinding halt. In fact, the economy contracted by a massive 23.9 per cent in the June quarter and 17.5 per cent in the second quarter in the FY2021, before staging a V-shaped recovery in the two subsequent quarters on the back of a gradual easing in the lockdown norms.

However, the 12 percentage point contraction in the June quarter may not be followed by a sharp V-shaped recovery this time around due to weakened consumer sentiment as people are more worried about the pandemic than last year, according to the Swiss brokerage UBS Securities India.

The brokerage house expects a sequential pick-up in economic activity from June, but is of the opinion that the economy may gain traction only from the second half.

"Unlike the V-shaped recovery in 2020, we expect the economy to have only a gradual recovery this time, as consumer sentiment remains weak on pandemic-related uncertainties," Tanvee Gupta Jain, the economist at the Swiss brokerage, said in the report.

The second covid wave inflicted massive damage on economic activities and rendered more than 2 crore people jobless across the country in the months of April and May, according to the Centre for Monitoring Indian Economy.

However, on the positive side, the lockdown in the second wave lasted for slightly more than a month as against 2.5 months in the first wave and was more localized as industrial and construction activities being allowed at a limited scale.

Meanwhile, in its monthly bulletin for June 2021, the Reserve Bank of India (RBI) said the second covid wave may result in a loss of ₹ 2 lakh crore in output during the current financial year as containment measures and the virus’ spread into smaller cities and villages hit rural demand.

And in a report published earlier this week, industry body CII emphasized that accelerated vaccination is the key to faster economic recovery and called for ramping up vaccine production to at least 175 crore doses by 2021.

The Reserve Bank, in its latest monetary policy unveiled at the start of the month, maintained the status quo on key policy rates for the sixth time in a row, continuing with its accommodative stance to revive economic growth.

India has recorded around 2.8 crore covid-19 infection cases since last year, second only to the United States, and more than 3 lakh casualties.