Finmin pins hope on vaccine drive for robust recovery in services sector

GDP contraction of 7.7% is much smaller than expected, DEA says

The Finance Ministry on Tuesday said that the mega vaccination drive against Covid-19 is supporting the economic recovery process, as it pinned hopes of a robust comeback in the worst affected-services sector. It also underlined that the estimated contraction of output to 7.7 per cent of growth domestic product (GDP) in FY21 is much smaller than originally apprehended. It further said that India has been able to avoid the second wave of the pandemic and limit the fatality rate to one of the lowest globally. 

The finance ministry’s Department of Economic Affairs (DEA) in its Economic Review for January said, “The initial stringent lockdown was critical to saving lives and the V-shaped economic recovery. The continuous drop in daily cases and fatalities bespeak India’s escape from a Sisyphus fate of back and-forth policy responses, enabling continual unlocking of the economy. Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP growth in Q2 after the sharp decline in Q1 and a sustained resurgence in high frequency indicators. The V-shaped economic recovery is supported by the initiation of a mega vaccination drive with hopes of a robust recovery in the services sector."

 

FY22 will be the year to rebuild with the IMF projecting output growth at 11.5 per cent, economic survey at 11.0 per cent and the RBI’s Monetary Policy Committee at 10.5 per cent. With the IMF keeping India’s growth projections elevated at 6.8 percent in FY 2022-23, India is back as the fastest growing major economy in the world, report said.

According to the DEA, with each day ending with positive cases falling to new lows and economic activity levels attaining new peaks, India has worked its way around the pandemic through the will of the brave people of India and astute policy interventions by the Government, report noted. 

It said that the early lockdown, health-infra ramp up, gradual unlocking, blanket testing, social distancing, calibrated fiscal stimulus to minimize supply side disruptions and revive demand and structural reforms pursued diligently by Government since March, 2020 have now come to fruition to limit the fatality rate to globally one of the lowest at 1.2 per cent. 

India administering close to four million doses of Covid vaccine within a span of two weeks since January 16 and become the fifth largest inoculated country in the world. India has not only become the vaccine hub of the world but has also extended assistance to more than 90 nations requesting doses for stocking up. 

Elaborating the measures take-in Budget, the report said that expanded borrowing programme mostly meant for funding the enhanced capital outlay, which was in line with the Budget, which has set in place the multiplier impact on growth to support the prescribed fiscal glide path tapering to 4.5 per cent of GDP in 2026. 

Taking the private sector as more than an equal partner in the growth process, the budget facilitates their access to infra-finance, introduces structural reforms to ease binding constraints on their investment and announces tax administration measures to ease compliance and, thereby, support them for making India self- reliant. 

 

The MPC statement issued four days after the Budget has kept the already low policy repo rates unchanged and maintained its accommodative stance on growth, extending deeper into FY 2021-22. A convergence across three windows of policy intervention lays to rest any ambiguity on the growth agenda of the Government. 

A sustained and strengthening economic recovery continues to be witnessed in January, 2021 across key high frequency indicators such as power consumption, inter and intra state mobility, manufacturing capacity utilisation, business expectations and consumer confidence. 

GST collections in January, 2021 have been the highest monthly collections so far in the history of this tax regime. Manufacturing and services PMI remain in expansionary zone while augmented credit growth, surging FDI and FPI flows and private placement of corporate bonds are providing critical financial cushion to the real recovery. 

The structural reforms and the policy push under the AatmaNirbhar Bharat Mission along with the slew of measures announced in the Budget towards achieving broad based inclusive growth will strengthen the fundamentals of the economy and bring it back on to a strong and sustainable growth path in the year ahead.