India’s economic fortunes diverge from the rest of South Asia as Covid cases continue to surge

by Anirban Nag
South Asia’s biggest economy has been ineffective in stamping out the coronavirus outbreak and it will show up in its economic performance: India is set to lag regional peers in the race to recovery.
The relative success of Pakistan, Sri Lanka and Bangladesh in containing the virus will help their economies recover at a faster pace than India, Capital Economics Ltd. said in a report to clients. India is now one of the world’s virus hotspots, with about 5.5 million cases.

“New cases per capita in these three economies are far lower than in India,” said Shilan Shah, senior economist at Capital Economics in Singapore. “This has enabled a faster rebound in activity.”

As a result, the drop in gross domestic product in 2020 will be much less severe in Bangladesh, Pakistan and Sri Lanka. Whereas, India is expected to post a double-digit slump.

Although per capita testing is higher in India compared to its neighbors, the share of tests coming back positive have fallen in the three neighboring economies, suggesting genuine progress in getting the virus under control, according to Our World in Data figures produced by the University of Oxford and Global Change Data Lab.

“Whatever the reasons, the important point from the economic perspective is that the lower prevalence of cases has meant that containment measures have been scaled back at a quicker pace than in India,” said Shah.