India's 2nd Lockdown Likely to Dent Progress Made in Business Optimism, Especially Services Sector

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With India in the middle of a second wave of coronavirus, lockdowns in some states have become a necessity and that has started to again affect industries, especially the services sector.

Data released by the government showed that the output of the eight core infrastructure sectors in February has contracted 4.6 per cent. It had jumped 6.4 per cent in February last year.

Six states — Maharashtra, Punjab, Karnataka, Madhya Pradesh, Tamil Nadu and Gujarat — continue to report a surge in daily cases, accounting for 78.56 per cent of the new cases. Maharashtra, the worst-hit, has indicated lockdown-like restrictions but has refrained from announcing a complete lockdown. It has instead chosen to impose localised restrictions for public places like restaurants, gardens, parks, malls and beaches and stricter rules are expected from April 1. States like Chhattisgarh and Gujarat have imposed night curfews, while Uttarakhand and Gujarat have made Covid testing mandatory for those entering the regions from outside.

According to a report by Indian Express, the Nomura India Business Resumption Index eased to 95.1 for the week of March 21 as against 95.4 in the previous week and 98.5 as on February 28. Activity is now 4.9 percentage points short of pre-Covid-19 levels.

"The knock-on effect of the second wave on mobility suggests a likely sequential dip in contact-based services and a near-term delay of normalisation. However, we expect the impact to be more transitory and muted (than in Q2 2020), as factory operations remain uninterrupted and consumers and businesses have adapted to the new normal; the latter overhauling their supply and sales chains to become more resilient to the second wave," Nomura said in its report.

In its recent report, Barclays India said that if the current restrictions remain in place for two months, this could shave 0.17 percentage points from the nominal GDP growth.