CONSUMPTION HIT FROM SECOND WAVE MAY DENT INDIA’S ECONOMY

NEW DELHI: India’s second wave of virus cases will hit the economy by prompting consumers to save rather than spend, unlike last year’s contraction that was driven mainly by supply disruptions, according to a research report.

The economic drag from the pandemic in the current quarter will be dominated by demand destruction or deferment of expenditures, said QuantEco Research economist Yuvika Singhal, who downgraded her full-year growth forecast for this year by 150 basis points to 10%.

“Expectation of consumption snag looks more palpable now than last year,” Singhal said.

“In contrast to a V-shaped recovery, consumption redux could look more U-shaped this year.”

Apart from a switch to precautionary savings as consumers become more risk averse, Singhal also sees pent-up demand from last year’s lockdown fading and spending in rural areas slowing as the new wave spreads from urban.

India later this month will report gross domestic product for Q4FY21. The data is unlikely to reflect the full impact from the record rise in virus cases and deaths, which has overburdened the nation’s health infrastructure and led to provincial lockdowns.

The second wave’s biggest hit has been to demand, with a loss of mobility, discretionary spending and employment, the Reserve Bank of India said.

“Though the gravity of health crisis is severe than last year, the economic impact of this is likely to be far less subdued than we saw in the first wave,” Garima Kapoor, an economist with Elara Capital, said.”