COVID-19: Factors that pose a threat to India's economic recovery

India's economic recovery could face major roadblocks if the Covid-19 situation continues to deteriorate. Many brokerage firms had predicted the second wave to disrupt India's growth for only a quarter due to fewer restrictions on mobility and businesses. However, pressure on the economy seems to be gradually rising as states tighten restrictions in view of rapidly rising cases and deaths.

Lower demand as COVID-19 cases rises

The fact that state-imposed restrictions have failed to contain the spread of Covid-19 cases is the biggest economic risk at the moment. As cases continue to rise, consumer sentiments have turned negative, evident from a drop in demand for non-essential goods.
Demand for commodities like properties, vehicles and consumer durables are likely to stay muted till the situation improves. In case the Covid crisis worsens, the demand for such commodities will fall further, ultimately impacting economic recovery.

Stricter restrictions/curbs

More states are now imposing stricter restrictions measures while some have announced a complete lockdown. This is likely to hurt non-essential economic activity, primarily affecting sectors like hospitality, tourism, aviation, real estate and even manufacturing to some extent.  Despite the imposition of strict curbs, most states are reporting a rise in daily Covid-19 cases.

Slower vaccination

India's Covid-19 vaccination drive has been slow in many states due to shortage and wastages. The pace at which people are being vaccinated against Covid-19 at the moment could lead to a significant delay in lifting curbs, resulting in higher losses than initially estimated. Multiple brokerages had earlier said the government has to ramp up the vaccination process to limit the economic losses during the second wave of Covid-19.

More sectors feel lockdown heat

Sectors like hospitality, tourism, entertainment and travel initially faced hurdles due to localised restrictions announced in some states.
However, more sectors are now feeling the pinch as lockdowns are getting stricter across most states. Real estate, construction, consumer durables, automobiles, aviation, transport and other ancillary sectors are feeling the pressure as lockdowns get stricter.

Unemployment, falling income

There has been a sharp rise in the unemployment rate in April due to a decline in business activity and restrictions. Although the impact is not as widespread in comparison to 2020, the unemployment rate is rising fast, especially among informal workers.
The rise in unemployment among informal or gig economy workers lead to a sharp drop in household income among the poorer population, which could even impact demand for essential commodities like food.

Inflation

Rising inflation during the second Covid-19 wave is another threat to economic recovery. While food inflation could drop, the fact that core inflation remains high remains a concern for the Reserve Bank of India (RBI).
At a time when many people are likely to lose their jobs due to lack of economic activity, inflation could further impact the demand equation and ultimately slow down the country's economic recovery.