HDFC Bank forecast a deeper contraction of 7.5% for growth in the current fiscal, down from -4.8% it expected in May, as Covid-19 cases surged in non-metro areas, forcing states and local governments to re-impose lockdowns in July.

The country was facing a situation similar to that in the US, where each state would have its own epidemic curve of a rise, peak and fall in cases, the report released on Friday said.

This would prolong economic recovery, it said, projecting -11% growth for the second quarter and a weak 0.7% and 1.5% recovery in the third and fourth quarters of FY21 respectively.

Citing similar reasons, rating agency ICRA slashed its forecast to -9.5% from -5% earlier, while CARE Ratings revised its expectations to -6.4% from -1.3%.

According to the HDFC dispersion index, which measures the spread in new daily cases, there was a spike at the end of May, when migrants traveled back to their homes and more recently in July as mobility increased during the unlock phase.

The number of cases has a strong inverse correlation with the Human Development Index (HDI) of the state, the report said, which in turn was inversely correlated to high outbound migration. This meant reverse migration would bring the infection to areas of high vulnerability.

“With the exception of Madhya Pradesh, both Uttar Pradesh (UP) and Bihar are net exporters of migrant labour. The dispersion also means that in these vulnerable states, which are associated with much less developed healthcare facilities than the initial hotspots, you might just have a rapid escalation of cases,” said Abheek Barua, chief economist of HDFC Bank.

Including UP and Bihar, nine states have imposed lockdowns in varying forms through July.

Such deep contractions may not actually materialise in the absence of further shocks, said economic affairs secretary, Tarun Baja, citing an uptick in revenues since June and improvements in leading indicators, during a virtual conference on Thursday.