Economic recovery to continue even in event of third wave: FinMin

India’s economic recovery, impacted by the second wave of Covid-19, will be faster in the next three quarters even if a third wave hits the country, the finance ministry has said. This confidence, it said, was mainly due to the intensification of the vaccination drive and several economic parameters returning to pre-Covid levels.

“Rapidly increasing vaccination coverage and richer experience with pandemic management provide the confidence that the recovery can continue even in the event of a third wave,” the finance ministry’s Department of Economic Affairs said in its monthly review for August.

However, the ministry raised concern about the high incidence of Covid cases in Kerala and Maharastra, and emphasised the need for pandemic management in the two states.

The report noted that the momentum of economic recovery was disrupted by the second wave in the second half of 2020-21, but the rapid surge in vaccination in Q4 FY21 and in the first quarter of FY22 contained the sequential decline in output.

India’s gross domestic product (GDP) grew by 20 per cent in the first quarter of the current financial year, reaffirming the economy’s resilient V-shaped recovery despite a more brutal second wave, it said.

Talking about sectors, the report stated that the agriculture sector continued to grow strong. A sharp rebound in the manufacturing and construction sectors places them firmly as growth drivers demonstrate the structural strengthening of the economy, it said.

While the revival of contact-intensive services sectors remains gradual, it is poised to gain pace on the back of rapid inoculation and the government’s targeted relief measures for the stressed sectors.

Record-high paddy procurement and increasing tractor sales augur well for strengthened rural demand in the coming months, it said, adding that industry was steadily gaining lost ground with June's IIP witnessing a broad-based growth, having recovered close to 95 per cent of the pre-pandemic levels of June 2019.

The index of eight core industries for July 2021 rose 9.4 per cent year-on-year (YoY), with all sectors except crude oil and refinery products surpassing pre-pandemic levels, it said.

Going forward, the fast-paced recovery is further evident in growth of power consumption, rail freight, highway toll collections, e-way bills, digital transactions, air passenger traffic, and robust GST collections.

The report pointed out that robust recovery in tax collections augurs well for the government to provide the required budgeted support to the economy. The recent decision to repeal the retrospective tax law further reflects the commitment of the government towards providing a stable and predictable tax regime for all stakeholders, it said.

However, the looming fear around the Delta variant of Covid-19 has once again cast a shadow, necessitating sustained precautions with greater focus on testing, tracking and adopting appropriate behaviour.