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As India battles the severe second wave of Covid-19 and the states undergo lockdowns, Barclays has cut its growth estimate for India for the current financial year to 9.2 per cent.

Its earlier estimate was 10 per cent.

"We reduce our baseline FY2021-22 GDP growth forecast again, lowering it to 9.2 per cent y/y from 10 per cent earlier, and 11 per cent before the outbreak of the second wave," it said in a report.

It noted that although India's second Covid-19 wave has started to recede, the related economic costs have been larger owing to the more stringent lockdowns implemented to contain the outbreak.

Parts of the country are still experiencing an increase in new cases. However, the overall situation appears to be coming under control, reducing burden on the country's healthcare infrastructure, it said.

"In our view, this bodes well for a gradual reopening, but only with a lag," it said.

According to the brokerage the economic costs of the recent surge in cases are rising rapidly. After a reasonably stable April, the economy experienced a sharp decline in activity in May, as is evident in high frequency data.

"While we continue to believe the lockdowns will last only until end of June 2021, in our new base case, we now estimate economic losses of $74 billion, all of it contained in Q2 21 (April-June)."

At the same time, it observed that India's vaccination programme has slowed significantly, given persistent supply constraints and logistical challenges. Although the government has provided greater flexibility for states to set their own vaccine strategies, problems persist and supply is only expected to improve in Q3 21.

The slow vaccination drive may pose medium-term risks to growth, especially if the country experiences a third wave of Covid-19 cases, said the brokerage report.

In a more pessimistic scenario in which the country is hit by a third wave of Covid-19, Barclays estimates that the economic costs could rise by at least a further $42.6 billion, assuming another round of similarly stringent lockdowns are imposed for eight weeks.

Under this pessimistic, "bear case" scenario, it estimates that the GDP growth would be lowered by a further 150 basis points, dragging FY2021-22 growth down to 7.7 per cent on a year-on-year basis.