Covid-19 vaccination drive at a Government health centre during Covid-19 emergency in Kolkata, India, 03 May, 2021. Pfizer in talks with India over expedited approval for Covid-19 vaccine according to an Indian media report.

Indranil Aditya | NurPhoto | Getty Images

India’s economy is expected to have improved in the three months that ended in March — but analysts have trimmed growth expectations for the current quarter that ends in June.

It comes as India continues to battle a devastating second wave of coronavirus outbreak.

Gross domestic product for the January to March period — India’s fiscal fourth quarter — is due Monday around noon GMT. India’s fiscal year starts in April and ends in March the next year.

Reuters reported that economists polled have a median forecast of 1% on-year growth for the March quarter — that’s up from 0.4% in the previous quarter. However, economists are less upbeat about the current quarter ending in June.

We need to get to a critical vaccination level, immunization level, in India to stabilize the outbreak — and that is critical for economic growth.

Frederic Neumann

HSBC

The median growth forecast for the three months between April and June is 21.6% — down from an earlier estimate of 23%, Reuters reported. For the full fiscal year 2022, the median forecast is down from a previous estimate of 10.4% growth to a 9.8% expansion.

India is the second worst-infected country in the world behind the United States. It has reported more than 28 million cases and over 329,000 deaths.

Expected growth is ‘cold comfort’ for India

The projected growth rate for the March quarter “will be cold comfort for India, which has recoiled back as COVID re-emergence has forced another wave of activity pullback,” Lavanya Venkateswaran, an economist at Mizuho Bank, wrote in a Monday note.

The real focus will be on how India manages to get its economy back on track in the second half of the calendar year, following the expected setback in the current quarter, Venkateswaran explained.

She added that the bigger concern is the scarring effects on the country’s informal economy and the banking sector that was already capital constrained and burdened with under-performing assets.

Covid-19 cases in India began climbing in February and the daily infection rate accelerated in April and May, reaching a peak of more than 414,000 cases on May 7. The second wave forced most of India’s industrial states to implement localized lockdown measures to slow the virus’ spread.

Though cases have come off record highs, with the daily reported number falling below 200,000, there are concerns around rapid transmission in rural India, where experts say the health-care infrastructure is ill-equipped to handle a surge in patients.

Eyes on ratings

The second half of the year is crucial for India to boost its Covid-19 vaccination program and minimize the impact of a likely third wave of infections, economists have said.

“Ultimately, it comes down to vaccinations,” Frederic Neumann, co-head of Asian economics research at HSBC, told CNBC’s “Squawk Box Asia” on Monday. “We need to get to a critical vaccination level, immunization level, in India to stabilize the outbreak — and that is critical for economic growth.”

Neumann added that based on trends seen last year, the Indian economy tends to bounce back quickly once virus cases come off the peak. He said he expects the situation to improve by the end of the September quarter.

A robust vaccination drive can also reduce risks related to any potential downgrade of India’s sovereign ratings, which has become a concern among investors, according to Kaushik Das, chief economist for India and South Asia at Deutsche Bank.

Ratings agencies have said they do not see any imminent changes to India’s sovereign ratings yet. They expect the economic fallout from the second wave to be limited to the June quarter and predict it will not likely be as severe as last year, when India implemented a months-long national lockdown.

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