The finance ministry on Wednesday said that quickening the pace and coverage of vaccination is critical to helping India heal and regain the momentum of economic recovery.
It further said manufacturing and construction activities are expected to experience a softer economic shock in the April-June quarter of the current fiscal year due to state-imposed restrictions.
“The onset of the second wave of Covid-19 since mid-February 2021 and localised or state-wide restrictions adopted to combat its spread, have posed a probable downside risk to the momentum in India’s economic recovery in the first quarter of FY22,” said the finance ministry’s department of economic affairs (DEA) in its monthly economic review for May.
It added that the economy was still recovering from last year’s supply and demand shocks. The report, however, emphasised that India’s second wave situation has been improving lately with a continuous decline in 7-day average of active cases since May 13. Data shows that the second wave reached its peak of 7-day average of daily new cases around May 8, with the pace of decline being as fast as the rise. The daily case positivity rate has plummeted sharply from 24.9 per cent in early May to 3.6 per cent as on June 2. This is below the World Health Organization (WHO) standard of 5 per cent.
High frequency indicators in real and financial sectors like power consumption, E-way bills and foreign portfolio investment (FPI) flows witnessed a slight uptick in the second half of May 2021.
However, sequential slackening was observed in eight core industrial sectors, factory manufacturing, steel consumption, auto sales and tractor sales. They also include petroleum product consumption, rail freight, port and air traffic, PMI services, highway toll collections, GST collections and UPI transactions. The report pointed out that the intensity of the second wave could not be predicted by epidemiologists. This led to uncertainty on the trajectory of the pandemic, as economic activity is linked to the path of the pandemic.
“A ramp up in the pace and spread of vaccination on a war footing is critical to help India restrain the impact of the pandemic.
Continued vigilance, in terms of pandemic preparedness, upscaling health spending and health infrastructure, faster rollout of vaccines and vaccination; and investing in research and development, among others, are essential to maintain the delicate balance of lives and livelihoods, it said.
It added that continuous upscaling of India’s vaccination drive and pro-active application of the first-wave’s management policies raise hopes that the impact of the second wave on the economy may not be very large.
“Apart from the vaccination, the fiscal measures planned in the Union Budget hold the key to invigorating the investment cycle in the coming quarters,” the report noted. The report said that as economic activity resumed following gradual unlocking and policy support, private consumption grew at 2.7 per cent after falling for three consecutive quarters.
Moreover, contact-intensive hotels, trade and transport sectors contracted by only 2.3 per cent in the fourth quarter of FY21 after large declines in the previous quarters.
However, this momentum of economic recovery has been moderated by the ravaging second wave.
“Unlike the first wave, the effect of the second wave has been asynchronous in its onset across states and wider in its spread as this wave also entered the rural hinterland,” it said.
Talking about herd immunity, the latest monthly economic review said, “Herd immunity is accomplished when 80 per cent of the population is immune or less susceptible to infection. The key to regain the momentum of economic recovery is attainment of herd immunity at the earliest possible. According to India’s demographic distribution, 865 million people or 63.1 per cent of the population is above 18 years of age. Assuming herd immunity at 80 per cent, the target population to be vaccinated is 700 million.”
The report said that the net tax revenue to the Centre showed an increase of 5.9 per cent in 2020-21 (provisional actuals) over revised estimates (RE). This was due to an improved collection observed under all the major tax revenue heads compared to the RE.