Before a coronavirus second wave, worsened by a new double mutation variant thought to be behind the sudden surge in cases that overwhelmed hospitals, India’s economy expanded by 1.6 per cent – the second straight quarter of growth and a sign that economic activity was steadily recovering.

The first quarter expansion followed a 0.5 per cent year-on-year growth between October and December. A period during which Asia’s third largest economy began to cautiously venture out for the traditional festive season following strict pandemic-inflicted lockdown measures during spring and summer of last year.

On the expenditure side, both private and public spending rebounded while gross fixed capital formation, which measures the net value of acquisitions of new or existing fixed assets by the business sector, governments and households, rose faster.

Net trade, measuring the total value of exported goods and services less the total value of imported products, contributed negatively to growth as imports rose at a faster pace (12.3 per cent vs -5 per cent in Q4) than exports (8.8 per cent vs -3.5 per cent in Q4). On the production side, output rose for construction (14.5 per cent), utilities (9.1 per cent), and manufacturing (6.9 per cent).

In the last fiscal year, ending March 31st, the economy contracted a record 7.3 per cent, less than earlier estimates of an 8 per cent drop.

Despite projections for the current quarter being more pessimistic amid the sudden surge of coronavirus infections in April, Asia’s third largest economy is expected to grow at the world’s fastest rate this year.

The International Monetary Fund (IMF) forecasts economic growth of 12.5 per cent for this fiscal year (April 2021 to March 2022). A double-digit growth set to make India the fastest-growing large economy in the world. The estimate, although plausible, seems ambitious given the recent surge in coronavirus infections and drop in mobility, ensuing the restrictions imposed by regional authorities.

Coronavirus infections trickle lower

Over 170,000 people have died in the past two months, since the country has been hit by a devastating second wave that overwhelmed health systems and caused acute shortages of medical supplies. Albeit such high figure, the trajectory is now improving.

Newly confirmed coronavirus infections are steadily declining because of regional lockdowns, to contain the spread of the virus, and an increased level of antibodies among the population, according to public health experts.

India’s seven-day moving average of new daily infections has fallen to 151,000, down from a peak of 409,000 in early May. Meanwhile the number of daily deaths fell to 3,500 from 4,100 – a figure noted at the pandemics peak.

While the absolute numbers have seemingly improved, the accurate number of those infected and dead are most likely higher as testing, particularly in the rural areas, remain scarce.

Striking a balance is key

As the number of coronavirus infections are on a downward trajectory, the authorities, are now faced with a challenge of trying to ease restrictions and revive economic activity without contributing to a sharp rebound in cases.

Needless to say, striking the right balance is key.

India’s vaccination programme, to date, marred by shortages of jabs, shall improve. India will have nearly 120 million doses of coronavirus vaccines available for domestic use in the month of June. The latter certainly contributing to the ideology of a resumption in activity and thus improved economic outlook.

Disclaimer: This article was written by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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