In its monthly economic report, the finance ministry has emphatically maintained the importance of quickened pace of vaccination for faster economic recovery. According to the finance ministry, coverage of vaccination of people against COVID-19 is extremely crucial for regaining growth momentum as economic activities are inextricably linked to the path of the pandemic.
In its statement, it stated that “As we cautiously recuperate from the second wave, rapidly improving vaccination delivery and frontloading the fiscal measures planned in the Union Budget hold the key to invigorating the investment cycle in the coming quarters,”.
Talking about the impact of the second COVID wave on the economic activities, finance ministry has maintained that the economy is expected to experience a softer economic shock compared to the first wave. This is due to the fact that the state-level lockdown restrictions have been more adaptive to learnings from the first wave. Thus, the manufacturing and construction activities are expected to experience a softer economic shock in the current quarter.
In order to maintain the delicate balance of lives and livelihoods, prudent government policies like continued vigilance in terms of pandemic preparedness, faster rollout of vaccines, upscaling health spending and health infrastructure, investing in research and development to guard against possible mutants of the virus and strict observance of COVID-appropriate behavior is needed.
As of lately, India’s second COVID-19 wave’s devastating effect has been wearing out as a continuous decline in the 7-day average of active cases since May 13, 2021 has been seen. It is to be noted that the daily case positivity rate has plummeted sharply from 24.9% in early May to 3.6% as of June 2.
Consequently, high-frequency indicators in real and financial sectors have positively shown an uptick. Indicators like power consumption, foreign portfolio investment and e-way bills have reportedly witnessed slight uptick in the second half of May 2021, after enduring the second wave-driven contraction during April and the first half of May.
The finance ministry report also noted that the country had witnessed a V-shaped economic recovery in the second half of 2020-21. This was due to a huge uptick in demand due to festive season and pent-up requirements of the public. However, it is to be noted that due to the devastation cause by the covid second wave, the demand is unlikely to be highly responsive to the easing of lockdowns in states. This shows that instead of a V- shaped recovery, the economy might see a U- shaped recovery. In a U-shaped model, economic activities are bound to continue at the current rate and will experience an increase only after some time.
Additionally, according to the report published by the finance ministry, India is one of the select few economies that have witnessed positive Year-on-Year growth in the last two consecutive quarters.
As has been previously reported, India’s real GDP had grown at 0.5% in third quarter and 1.6% in fourth quarter of FY 2020-21. This has led to an upward revision in annual real GDP growth from (-)8% to (-)7.3% in FY 2020-21.
With a strong policy focus on infrastructure spending and construction in the latter half of FY 2020-21, the ratio of Gross Fixed Capital Formation (GFCF) to GDP reached 34.3%, among the highest in over twenty-six quarters.