ECONOMIC OUTLOOK

India's COVID Crisis

  • 24 May 2021
  • 5 mins reading time

India is undergoing a health crisis as the country deals with a new strain of covid-19. In this article, we consider the implications for India and beyond in terms of both health and the economy.

India has been undergoing a tragic surge in COVID-19 cases. But, as the chart shows, the number of new cases in India is falling while new recoveries are increasing.

The worst of the crisis could be over

Vaccines appear to be effective against the Indian strain of the virus which reduces the big risk of widespread, strict lockdowns.

We have evidence of vaccine effectiveness in the UK. In Bolton, the Indian strain of the virus has largely been spread by sections of the population who have not been vaccinated, such as children, who are seen as being less vulnerable to the virus.

Also, there was an outbreak in a London care home, representing a much more vulnerable demographic. But all of the patients had already been vaccinated and there were no deaths.

In the meantime, the Indian authorities have increased the vaccination rate and imposed lockdowns on a state-by-state basis. According to analysis conducted by the Data Insights Unit of Schroders Investment Management (“India macro” document for professional investors, May 2021), India is on track to have a herd-immunity level of between 50% and 60% by the end of 2021. To quote Johns Hopkins University, “depending on how contagious an infection is, usually 50% to 90% of a population needs immunity before infection rates start to decline”.

India appears to be ahead of that statistic, perhaps by virtue of its relatively young population providing a greater level of overall resilience against the virus.

No room for complacency

While there is plenty of reason for hope, actions may still be necessary in India and elsewhere. India’s lockdown restrictions might need to be extended or even strengthened in order to help lift pressure on the country’s healthcare infrastructure.

The UK’s easing of lockdowns might also need to be tapered. For example, with unvaccinated young people being among the most common to have shown signs of the new strain, the localised closing of schools could be an effective, if unpopular, step.

However, the analysis from Schroders Investment Management suggests that there is a greater-than 90% likelihood that the Indian strain of the virus will be brought under control through herd immunity and restriction of movement where necessary in countries ranging from India to the US.

Providing, as we all hope, the Indian crisis can be brought under control, the chances of another global wave of contagion, from this strain at least, appears unlikely. That being the case, the lesser element of economics can now be considered.

Economic outlook

While some extension of lockdowns might be required, it would appear that the economic recovery is likely to continue through 2021.

Inevitably, India’s economy has suffered the most as a result of the strict lockdowns imposed in 2020. Its economy is estimated to have shrunk by around 8.0% in the financial year ending-2021 according to India’s National Statistics Office.

From this low base, Schroders Investment Management had estimated a rebound of 11.5% across the calendar year of 2021. Following the effects of the recent Indian health crisis, they’ve revised that down to 9.0.

While disappointing, this is still an extremely fast rate of growth. To put it into context, the UK’s economy (which is a very similar size in terms of total value to that of India) has grown by between 1.3% and 2.9% each year from 2014 to 2019.

Minimal implication for UK investors

The conclusion to be drawn from the cold perspective of UK investments, is fairly simple. The UK has around £23 billion-worth of trade with India each year according to the UK government’s own figures. That equates to less than 1% of the UK economy.

The point being that the fluctuations of the Indian economy have minimal implications for UK investors. That said, the human tragedy continues and cannot be conveyed in numbers.

Important information

Any views expressed are our in-house views as at the time of publishing.

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In preparing this article we may have used third party sources which we believe to be true and accurate as at the date of writing. However, we can give no assurances or warranty regarding the accuracy, currency or applicability of any of the content in relation to specific situations and particular circumstances.

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