India's economic hit from second Covid wave to be limited to Q1: Moody's

India's economic damage due to the second wave of COVID-19 and subsequent lockdowns will remain restricted to the April to June quarter, Moody's Investors Service said in a new macroeconomic outlook.

"We currently expect India's real GDP to grow at 9.6 per cent in 2021 and 7 per cent in 2022," it said. "With states now easing restrictions, economic activity in May is likely to signify the trough."

It assessed the overall economic effect of the second wave to be softer than that during the first wave of pandemic last year, although delivery of and access to vaccines will determine the durability of recovery.

"We expect the current lockdowns to have less of an adverse impact on economic activity than the nationwide lockdown in April 2020 because the latest restrictions have been more targeted, localised and less stringent," said Moody's.

"Also, consumers and businesses have adapted. The second wave has mainly affected aggregate demand in contrast to last year when the national lockdown also constrained supply."

The 10 states that have been hardest hit by second wave collectively account for more than 60 per cent of the pre-pandemic level of India's GDP. Four states -- Maharashtra, Tamil Nadu, Uttar Pradesh and Karnataka -- contributed the largest shares among all states in the financial year 2019-20.

Moody's said mobility and economic activity will likely accelerate in the second half of year as pace of vaccinations picks up. The government recently announced a strategy to centralise vaccine procurement in order to boost vaccinations which if successful will support economic recovery.