When early signs of the second Covid-19 wave emerged in India a few months ago, many experts predicted that the economic damage would not be as bad as the first wave in 2020. There were two primary reasons behind the assertion — India had vaccines against the virus and no nationwide lockdown was imposed.

But almost three months after the first signs of the second wave emerged, India is struggling to vaccinate its vast population and strict lockdowns remain imposed in almost all parts of the country. As a result, the economic growth projections shared earlier have changed drastically. Even SBI, the country’s largest public lender, recently slashed its FY22 growth forecast.

Data on jobs, income, household income, consumer sentiment and demand show that the second wave has had a devastating impact on India’s economy, especially on poorer citizens and smaller businesses. Even rural areas that were a saving grace during the first wave have been deeply affected this time.

LESS THAN EXPECTED GDP GROWTH

Many ratings agencies and banks have lowered their FY22 GDP forecast for India in just a matter of months. While India’s March quarter (Q4FY21) GDP growth improved, economists believe that the gains have been eroded by the second wave of the pandemic.

On Tuesday, the State Bank of India (SBI) slashed the country FY22 growth forecast to 7.9 per cent from the earlier 10.4 per cent. Several international banks and ratings agencies have also slashed India’s growth for the current financial year in view of the devastation caused by the second Covid-19 wave.

The first wave has already taken a toll on India’s GDP in 2020-21. Official figures for full-year growth released this week indicated that India’s economy contracted 7.3 per cent in FY21 — the sharpest ever in the country’s history.

While India’s economy was earlier expected to rebound faster among all major economies in FY22, the first quarter growth has already been hit hard by the second wave. In contrast, developed economies like the US and China have witnessed a far better rebound. Even neighbouring Bangladesh has surpassed India in terms of per capita income.

The lower per capita income not only signals rising inequality among the rich and poor but also highlights how poverty is on the rise in India.

SBI Chief Economist Soumya Kanti Ghosh told news agency Reuters that GDP growth of less than 10 per cent in FY22 would “not be very beautiful” for the country.

RISING UNEMPLOYMENT HITS POORER HOUSEHOLDS

Rising unemployment has emerged as the biggest economic concern during the second Covid-19 wave as it has mostly affected the informal economy and poorer households. India Today TV has reported many accounts of families struggling to make ends meet during the second wave.

While no nationwide lockdown was announced this time, the local restrictions imposed across states have had an equally devastating impact on small businesses and their employees.

Data suggests that the pace of employment increased sharply in May as smaller firms trimmed jobs at the fastest rate since October last year.

Mumbai-based think tank Centre for Monitoring Indian Economy had earlier confirmed that one crore Indians have lost jobs during the second wave and the numbers are still rising. The second wave has also led to a sharp rise in spending towards healthcare and 97 per cent of households in the country have been left with lower savings.

Given the current situation, states may take some more time to completely unlock key economic activities. This could lead to further loss of employment and income among poorer households.

The first wave of the coronavirus pandemic had pushed many people below the poverty level and the second wave could make the situation worse, given the money people had to spend on healthcare.

WEAK CONSUMER SENTIMENT, FALLING DEMAND

Lack of demand and the dipping consumer sentiments during the second wave are two other factors that will significantly make India’s economic recovery harder.

The lack of demand could last longer during the second wave due to higher healthcare costs and prices of essential commodities such as edible oil. During the first wave, demand surge sharply as soon as the pandemic subsided, aided by the festive season in October 2020.

However, citizens are not in a mood to spend freely this time, given the health and financial emergencies that stunned households during the second wave. Multiple surveys have indicated that consumer sentiments have been hit hard during the second wave and people are scared of the uncertainties ahead.

The combination of slow demand growth and lack of consumer confidence could significantly derail the economy as people are likely to remain hesitant for a longer period before they start spending on discretionary items. The lack of vaccinations and fear of a third coronavirus wave has increased fear among citizens who are likely to save more to prepare for uncertainties.

The absence of a major relief package this time could also make matters worse. Last time, India announced a series of relief packages aimed at helping distressed citizens and sectors, but no such measures have announced this time.

The government, however, claims that many measures that were a part of the relief package during the first wave have been extended. But reports suggest that the relief has not reached the poorest population in the country.

The only notable relief measure during the second wave was announced by the Reserve Bank of India (RBI) a month ago. But the lack of demand and the inability of citizens to repay debts clearly shows that the measures are falling short at the moment.

DEFAULTS ON THE RISE

One major evidence of economic weakness is official data on rising loan defaults and cheque bounces. Banks have reported a rise in loan defaults and cheque bounces during the second wave. It signals that many citizens are struggling to clear debts.

Cheque bounces rate for loan repayments have doubled to over 20 per cent from the year-ago period while credit card defaults rose to 18 per cent, suggested a Reuters report, quoting data from fintech company Creditas Solutions.

Meanwhile, several banks have indicated that retail loan defaults are likely to rise in the coming months. HDFC Bank’s CEO Sashidhar Jagdishan recently stated during an investor call that the bank may not have a grip of what is happening for the first time in so many years.

All of these factors indicated that the second Covid-19 wave has hit the Indian economy hard and the effects of the battering are likely to become more visible as the year progresses.