India's Chief Economic Advisor Krishnamurthy Subramanian said on May 31 that the pace of coverage of the nationwide COVID-19 vaccine programme will have to be enhanced as the pandemic is the biggest unknown when it comes to economic recovery in 2021-22
This assertion has been backed by other economists who also say that the spread of the pandemic, a possible third wave, and the extent of localised lockdowns will determine recovery.
Subramanian was addressing a media briefing after the release of gross domestic product (GDP) data for 2020-21, which showed that GDP contracted by 7.3 percent, even as economy in the January-March 2021 quarter grew by 1.6 percent.
This was the first yearly economic contraction since 1980-81 and the largest since the calculations of national accounts began in the early 1950s. Most of the damage to the economy was done in April-March quarter, when GDP had contracted by an unprecedented 24.4 percent due to the nationwide lockdown.
Because of that low-base effect, GDP is expected to show strong growth in April-June of this year. However, the second wave of the pandemic does provide downside risks to economic rebound in the current quarter, Subramanian said.
"The second wave peaked on May 8 and decline has been as fast as the rise. There is a need to enhance pace of coverage of vaccinating the population. Our data shows that only 15-20 percent of the eligible population have received their first dose while less than 5 percent have received the second dose," he said.
Subramanian added that the overall impact of the second wave of COVID-19 is unlikely to be significant, although there is uncertainty over possible double-digit growth in the current financial year.
Addressing the media after the release of the GDP numbers, the CEA also said that giving any actual numbers for economic forecast would not be prudent as the pandemic is evolving and the economic trajectory of the country totally depends on the severity of the pandemic.
"Whether or not that will be double-digit or single-digit there is uncertainty because scientists are also talking of a possibility of a third wave. Economic activity is inexplicably linked to the path of the pandemic," Subramanian said.
The CEA was of the view that with the country still battling with the pandemic continued monetary and fiscal policy support will be important going ahead.
Manufacturing could rebound strongly
The extent to which localised restrictions are continued in the coming months will impact the timelines of the recovery. Other key monitorables are whether an accelerated pace of vaccine rollout can prevent a third COVID surge," said Aditi Nayar, Chief Economist with ICRA Ltd. Nayar added that she expected real GDP to expand in the range of 8-9.5 percent in FY2022.
Speaking on specific sectors, Subramanian said that going by the trends in Manufacturing Purchasing Managers Index, this one sector could rebound strongly, and add to economic revival.
The manufacturing sector contracted by 7.2 percent in 2020-21, data showed, while services was the worst hit, with a contraction of over 18 percent.
"While some of the services have done well since April, touch sectors remain a concern. Overall manufacturing is expected to do well, and as there is feedback from manufacturing to non-touch services, the latter sector is also expected to rebound," the CEA said.
He however added that revival of touch services like hospitality, leisure and tourism depended on the pace of vaccination.
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