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What India's COVID disaster means for the world economy

·6-min read
The outbreak is now so severe that hospitals in India are running out of oxygen and beds, and many who have taken ill are being turned away. Photo: Sonu Mehta/Hindustan Times via Getty Images
The outbreak is now so severe that hospitals in India are running out of oxygen and beds, and many who have taken ill are being turned away. Photo: Sonu Mehta/Hindustan Times via Getty Images

India is currently suffering from one of the world’s worst outbreaks since the coronavirus pandemic began more than a year ago.

The number of new COVID-19 infections in the country hit a fifth consecutive daily record of 352,991 on Monday. A total of 190,000 people have died from coronavirus in India, while more than 16.6 million have been infected.

However, experts believe the true number of cases and deaths is being widely undercounted as sick patients are unable to get tested and fatalities are being misreported.

Watch: India's COVID patients camp out to get oxygen

The outbreak is now so severe that hospitals are running out of oxygen and beds, and many who have taken ill are being turned away.

Due to this crisis, India has now blocked exports of COVID vaccines which comes as a major blow to the dozens of nations it supplies.

The country, which is one of the biggest vaccine producers across the globe, is instead looking to prioritise local vaccinations due to the accelerating second wave. India has exported more than 60 million vaccines so far, but this is more than the 54 million doses it has given to its own people.

The current health crisis in India will not only affect vaccine supply but will also have an impact on the global economy.

Effect on vaccine supply

The Serum Institute of India is the largest manufacturer of vaccines in the world, the biggest supplier to the international Covax programme, and a producer of the AstraZeneca (AZN.L) jab.

Halting exports, which has been reported could last as long as two to three months, would directly impact the Covax scheme, which was set up with the World Health Organisation (WHO) to ensure the distribution of at least 2 billion vaccine doses this year.

Adar Poonawalla, chief executive officer (CEO) of the Serum Institute of India. Photo: Francis Mascarenhas
Adar Poonawalla, chief executive officer (CEO) of the Serum Institute of India. Photo: Francis Mascarenhas

Lower income economies such as Africa, which is heavily dependent on the Covax programme, will now be faced with delays.

“Without ramping up access to vaccines we will be challenged . . . Lives will be lost,” John Nkengasong, director of the Africa Centres for Disease Control and Prevention, said.

The Serum Institute also has bilateral supply agreements with several countries, including the UK.

READ MORE: Boris Johnson sends envoy to Serum Institute for vaccine deal with India

The UK's vaccine rollout programme has already faced delays after the late arrival of around 5 million doses from the Serum Institute. In March, health secretary Matt Hancock said the delay, caused by manufacturing issues, would disrupt Britain's vaccination programme during April.

However, Paul Dales of Capital Economics said “the risk to the UK economy is small”.

“The vaccine supply from India makes up a relatively small share of the UK’s overall supply,” he said. “So at the moment, we are assuming that the UK government hits its target of supplying a first dose of the vaccine to all UK adults by the end of July.”

Effect on GDP

India is a major economy and it’s worsening COVID crisis is a setback for growth prospects, with an uneven recovery from the pandemic playing out across the world.

According to the IMF, India is expected to grow by 12.5% this year, while S&P Global Ratings has said the Indian economy is projected to grow at 11%. However, the new wave of infections could now undermine this rebound amid fresh lockdowns and curfews to prevent the spread of the virus. 

The Indian economy is set for a difficult second quarter, and a slowdown could also mean a slower global growth rate.

Gita Gopinath, IMF chief economist, has already warned that its previous calculations predated the latest, “quite concerning” wave.

Additionally, global forecasting firm Oxford Economics revised its India GDP growth forecast for from 11.8% to 10.2% for 2021. It cited the country's escalating health burden, faltering vaccination rates and lack of a convincing government strategy to contain the pandemic.

For now, prime minister Narendra Modi has shunned a nationwide lockdown and encouraged states to keep their economies open.

Watch: India on brink of COVID disaster as oxygen runs out

It also comes as an index of business activity in India, tracked by Nomura, registered its biggest drop in 12 months in the first week of April.

The rise in COVID cases in India could also put a strain on certain medical supplies as countries around the world, including the UK, US and European Union, have offered to help with shortages.

“Pledges of help are coming in thick and fast with governments around the world offering oxygen supplies and medical equipment and this show of solidarity may have helped limit losses to some extent,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“It’s not simply altruistic. There is a fear that further mutant strains of the virus could emerge in India with infections concentrated in highly populous areas. The worry is that new mutations could weaken the effectiveness of vaccines and lead to fresh restrictions in economies which have bounced back from what was hoped to be the worst of the pandemic.”

In addition to this, the variant of COVID-19 first detected in India, called the “double mutant” has already been found in several other countries, including in the UK and in America.

This could cause economies to reopen more slowly if cases of the variant spike, which in turn could also affect global GDP. Scientists are currently working to understand exactly what threat the strain poses as more variants appear across the globe.

Effect on oil demand

Oil prices have fallen recently as weaker demand is expected in India, which is the world’s third largest crude importer. The country consumes almost 10% of global crude oil exports.

The pressure coming from India (and also Japan, which has declared a third state of emergency in Tokyo, Osaka and two other prefectures) is currently outweighing signs of a strong rebound in the US and China — two of the world's highest consumers of oil.

Indian Oil Corporation is looking to sell gasoline into the spot market, a potential indication of weak domestic demand, while the country’s refiners are being forced to postpone planned shutdowns for maintenance at some plants as workers are either fleeing or falling ill.

A note from JP Morgan last week predicted that the market was likely to hit a three-year low by August, regaining losses by 2022 as economies reopen and return to growth.

Watch: Countries rally to help India's deepening COVID-19 crisis

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