By Shan Li and Vibhuti Agarwal
DEHRADUN, India -- India's coronavirus surge is starting to recede, but job losses and soaring medical expenses related to Covid-19 will weigh on spending and the country's economic recovery.
The South Asian nation's gross domestic product grew 1.6% in the three months ending on March 31, compared with a year earlier. The quarter doesn't reflect the impact of one of the world's worst coronavirus waves in April and May, when India set global records for daily coronavirus cases and deaths.
The daily cases have fallen to below 200,000 after topping 400,000 in April, and some cities and regions of India are considering lifting lockdown restrictions. But many economists predict that consumer spending, which makes up more than half of the country's GDP, will be slow to bounce back.
"The Indian economy will have lost a fairly large chunk of GDP that it will not be able to recover," said Mahesh Vyas, chief executive for the Centre for Monitoring Indian Economy, an independent think tank in Mumbai.
The world's sixth largest economy was hit hard by the pandemic last year, with the country sinking into a deep recession after a national lockdown in the spring. Pent-up demand, driven by India's richest consumers and biggest companies, eventually provided a boost.
This time around, the middle-class -- which was largely unscathed during the country's first wave -- have lost jobs or seen their earnings fall, Mr. Vyas said.
Gauri Bhatia, 55, said business has plunged 50% in the grocery store that she runs with her husband in Dehradun, a city in the northern state of Uttarakhand. Demand for anything but essentials has dried up.
During last year's lockdown, her employees stayed in the city and were hopeful that normalcy would return quickly, she said. This time, half of them quit to return to their home villages. The staffing shortage has forced the closure of her second business, a coffee shop.
"It's all come crashing down," Ms. Bhatia said.
Her family has trimmed personal expenses to cope with the lost income. They have canceled gym and club memberships, and even halted a few financial investments. Overseas travel is out of the question for the foreseeable future, she added. Her children have even learned to cook in the past few months.
"Eating out, or buying a new car can wait," she said. "Everyone is saving for Covid now."
India has avoided imposing the kind of national lockdown that brought the country to a virtual standstill for months last year. That has blunted some of the pain by allowing heavy industries such as agriculture and manufacturing to keep operating.
Data firm IHS Markit's purchasing managers index for manufacturing in India -- a measure of activity in the private sector -- rose to 55.5 in April, up slightly from 55.4 in March. A reading above 50 indicates that activity is increasing, while a reading below points to a decline in activity.
The Indian economy has a good shot of recovering in the latter half of the year, if vaccinations pick up in the third quarter, said Aurodeep Nandi, an economist with Nomura in Mumbai.
So far, only about 3% of the country's more than 1.3 billion people are fully vaccinated, according to the health ministry.
Other economists warned that many Indians will likely remain cautious about spending even after restrictions ease. Unlike the first wave, huge swaths of the country's population fell sick from Covid-19 this spring, including many young people who were largely spared before.
Many families hadn't fully recovered from last year's financial blows before they were hit with lost jobs and massive medical bills, said Kunal Kundu, an India economist at Société Générale Corporate & Investment Bank. The Indian government has also been reluctant to step in with the kind of financial assistance that some developed countries have provided to help people ride out lockdowns, he said.
"The so-called pent-up demand, I think that's more applicable to the Western world," Mr. Kundu said. For India, "demand recovery will be slow and even slower now with the impact of the second wave."
Consumer confidence among urban Indians dropped 1.1% in April compared with March, according to a monthly survey from Refinitiv-Ipsos. Expectations for jobs, personal finances, the economy and future investments all plunged, the survey said.
Dinesh Wadia, the 56-year-old owner of three eateries in New Delhi, said business was on the upswing after last year's lockdown temporarily closed almost 70% of the restaurants in India's capital.
"We got everything renovated, paid to get back our staff," he said.
But when the second wave hit, nearly 75% of his employees went back to their home villages. Mr. Wadia said he had to close two of his restaurants, and predicts that a third of all restaurants in Delhi may close permanently.
"Fear of the disease has compelled people to pause and examine their lifestyle and spending pattern," Mr. Wadia said. "They are suddenly talking about saving for a rainy day."
Many economists had originally forecast GDP growth of about 11% or higher for the fiscal year ending March 2022. Mr. Vyas said he has revised his forecast down to 8.7% from 9.3%. It may be slashed again closer to 8%, he said.
Opening up the economy too quickly could bring about another surge, especially among young people under the age of 45 who must wait months for second doses of the vaccine, Mr. Kundu said. Even though infections have fallen from the record peak, they remain high and there is a likelihood of localized outbreaks that will require smaller lockdowns, he said.
Mr. Kundu has cut his forecast for GDP growth to 8.5% from 9.5% for the current fiscal year. Further downward revisions could follow.
"My worry is there could be a third wave in India," he said.
(END) Dow Jones Newswires