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Economy

India's economic outlook weakens as COVID variant rages

Lockdowns seen reducing consumer spending and jobs for migrant workers

A migrant worker's family sits next to a bus at a bus station, as they wait to return to their village, after Delhi government ordered a six-day lockdown.   © Reuters

NEW DELHI -- The variant-driven wave of coronavirus cases sweeping through India is casting a cloud over the country's prospects for recovery from a year of record economic contraction.

The country of more than 1.3 billion people is now nearing 300,000 new coronavirus cases per day -- triple the worst daily figures during the peak of the first wave in September -- and local authorities are scrambling to curb the spread.

The government of the capital region of Delhi, where authorities are grappling with shortages of oxygen and hospital beds, imposed a lockdown from Monday until April 26. The western state of Rajasthan is shutting down restaurants and nonessential offices until May 3, and restrictions remain in place in Maharashtra, where Mumbai is located. These measures could be extended if the surge continues.

The outbreak has spurred private-sector analysts to trim their growth forecasts for fiscal 2021.

UBS cut its estimate to 10% from 11.5%, while Indian rating agency ICRA lowered the top end of its projection to 10.5% from 11%. Nomura Singapore downgraded its forecast to 12.6% from 13%. The government estimates that gross domestic product shrank 8% in fiscal 2020, the largest drop on record.

Unlike in many developed countries, the urban lockdowns and restrictions on economic activity are hitting the poor especially hard. The outbreak could dampen consumer spending, which accounts for more than half of India's gross domestic product.

The first wave of nationwide lockdowns in March 2020 left as many as 120 million migrant workers in major cities like New Delhi without jobs. India's GDP shrank 24.4% in the second quarter of 2020, the worst showing among major economies.

The new lockdowns are spurring an exodus of migrant workers from cities back to their hometowns, according to Indian media, which risks further dampening economic activity.

The outbreak has disrupted diplomatic plans as well. U.K. Prime Minister Boris Johnson has canceled a planned visit to India this month, as has Japanese Prime Minister Yoshihide Suga. The Indian government has scrapped a trip by Prime Minister Narendra Modi to the European Union that had been set for early next month.

In a meeting Monday with doctors, Modi called vaccines the "biggest weapon" against the outbreak. The government decided that day to expand COVID-19 vaccinations to everyone aged 18 and older on May 1.

India is the world's largest manufacturer of vaccines, yet it is starting to see a shortage of shots for domestic use as the outbreak rages on. The government plans to encourage pharmaceutical companies to ramp up production, but if the virus continues to spread, the supply of doses to neighboring countries could be affected.

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