The government of India doesn’t expect the damage to the Indian economy from the second wave of coronavirus to be as bad as the first wave. The centre’s outlook towards the economy was revealed by the union finance secretary TV Somanathan during his interaction with the press. The first wave of Covid-19 infections last year led to a 7.3% decline in GDP during the fiscal year 2020-21. The last time the Indian economy shrunk in size was forty years ago during fiscal 1979-80.
The optimism of the government is also shared by economists and multilateral institutions including the World Bank and the Reserve Bank of India. On Tuesday, the World Bank in its issue of “Global Economic Prospect” revised India’s growth estimate from 10.1% to 8.3% for FY 2021-22. “India’s recovery is being hampered by the largest outbreak of any country since the beginning of the pandemic,” the global lender had said in its report.
The central bank also revised its GDP growth estimate for FY2021-22 from 10.5% to 9.5%. However, it did say that the “loss of momentum is not as severe as at this time a year ago.”
The recovery prospects of the Indian economy can be slowed down by the spread of COVID-19 to rural areas and a reduction in consumer sentiment to spend, leading to a slower revival of demand.
While the second wave was much more devastating than the first one with regards to loss of lives and strain on the healthcare system, data reveals that its economic impact was lighter. No national lockdown was imposed during the current wave which ensured continuity of economic activity. The manufacturing PMI increased at a moderate pace in May.
Moreover, several states which had imposed local lockdowns have now started to unlock. The change is visible in many high-frequency indicators like power consumption, rail freight, vehicle registrations, E-way bills, exports, etc. all of which are increasing. The GST collections for the month of May crossed the Rs 1 lakh mark, providing a boost to government spending.
“The restrictions this time have been far less stringent compared to the national lockdown and movement of people within the country was not stopped,” said Gaurav Kapur, Chief Economist at the IndusInd Bank.
Going ahead, the pace of vaccination against Covid-19 will be a key factor determining the economic recovery in the country. The union finance ministry in its latest economic assessment had suggested increasing vaccination speed to 10 million doses a day. “The key to regain the momentum of economic recovery is attainment of herd immunity (75-80% of the population) at the earliest possible,” it added.