Economic impact of the second wave is not large; but affecting momentum of economic recovery, stated Chief Economic Advisor KV Subramanian. He further added that the recovery in the economy is expected from July.
During an interview with ANI, he said, “The second wave of COVID19 has affected the momentum of economic recovery. We expect a recovery in the economy from July. Now, states have started removing restrictions and if we speed up vaccination our economy will start recovering.”
Observing that the second COVID-19 wave peaked in May, Subramanian said the localised and state-wise restrictions adopted to check the spread of the virus do present some downside risk to growth in the first quarter of the current fiscal.
"We have assessed it by state-wise stringency index estimated for April 2021 and beyond and looking at 17 states that account for more than 90 per cent of GDP and adjusting the impact of vaccination and some pent-up demand coming back...we have made projections on that...we do think that the overall economic impact of the second wave is not going to be very large," he said.
He, however, said "monetary and fiscal policy support will continue to be important going forward." It is to be noted that the government is exploring the possibility of another round of stimulus to support the economy battered by the second wave.
For the MSME sector, the government announced some support on Sunday, while the Reserve Bank on the monetary side too recently announced some measures including restructuring of loans up to Rs 25 crore.
Recalling that the economy had recovered well by March 2021, he said, "the momentum of that recovery has been impacted by the second wave as we saw using several of the high frequency indicators that we track".
"GDP growth recovered steadily in the second half of the last fiscal on the back of the higher government expenditure, and the rebound in the net exports," he noted.
Subramanian emphasised that the speed and scale of the second wave does lend caution to the economic impact as the economy was still recovering from last year's supply and demand shocks.
Commenting on GDP numbers for 2020-21 released earlier in the day, he said a contraction of 7.3 per cent is indicating an improvement over the contraction of 8 per cent estimated as per the second Advance Estimates in February 2021.
The gross domestic product (GDP) in Asia's third-largest economy grew by 1.6 per cent in the January-March period, up from 0.5 per cent in the previous quarter when India began pulling out of a steep pandemic-induced recession in the earlier six months.
GDP had grown by 3 per cent in the January-March quarter in the previous year.