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Experts Views On Slow Vaccination, Indian Economy And Possible Third Wave

The Ministry of Statistics and Programme Implementation announced the GDP and Gross Value Added (GVA) data for the first quarter of the current FY. The Year-on-Year (Y-o-Y) comparison method revealed that the GDP grew by 20 per cent in Q1 this year.

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The ongoing Coronavirus pandemic has put every business sector in the dark in the entire country. From an economy that is almost collapsed, closed businesses, muted wage development, an increase in health expenditure, and a decrease in family reserve funds combined with a high inflation rate, India is witnessing it all. 

Recently, Fitch group revised its Ratings and downgraded its GDP forecast for the Indian economy to 9.4 per cent in 2021-22 from 9.6 percent. It linked the economic growth of India to the pace of vaccination

Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank said, “India’s vaccination pace has been picking up lately after a slow start. As per the company reports, the supply of vaccines would be further enhanced in the months ahead and the State authorities will then need to ensure effective administering of those doses. We expect economic activity to continue improving, especially around the festive season as the vaccination trend continues to improve. While we are optimistic about the uptrend on growth going ahead, we remain wary of the risk of a third wave before a larger population gets fully vaccinated. Furthermore, one of the key drivers of growth in 2021 has been robust external demand, which risks slowing given the increasing Covid cases globally. We, therefore, expect Financial Year (FY) 2022 Gross Domestic Product (GDP) growth at 9 per cent.”

Bhardwaj also said that globally we have witnessed a limited dent in the economic activity of COVID-19 in countries that have been able to vaccinate a larger proportion of their population. Clearly, the intensity of the disease gets reduced with vaccinations and hence people develop confidence in venturing into business/retail activities. With the emerging economies lagging significantly in the vaccination campaign, the developed economies have recovered faster and outperformed.

Amid the criticism from all around the country for economic failure, the Indian government has claimed a V-shaped recovery. The Ministry of Statistics and Programme Implementation announced the GDP and  Gross Value Added (GVA) data for the first quarter of the current FY. The Year-on-Year (Y-o-Y) comparison method revealed that the GDP grew by 20 per cent in Q1 this year. However, the critics looked at the Quarter-on-Quarter (Q-o-Q) method which revealed the economy contracted by 17 per cent in Q1 this year. 

Talking about the steps/initiatives or fiscal measures that the government should take to support households in distress, Bhardwaj said, "The government should follow a two-pronged strategy in supporting distressed consumers. In the near term, the government should provide additional direct transfers to select economic strata which would aid them to tide over the recent strain. However, from a medium-term perspective universal basic income should be considered as a key measure along with a  continued focus on infrastructure to ensure a more durable and sustainable source of income and thereby demand."

High Inflation: As India is dealing with the ongoing COVID-19 crisis, it is also witnessing anemic growth and elevated inflation, especially after battling the deadly second wave. However, according to the Ministry of Commerce and Industry data, wholesale inflation in India has eased to 11.16 per cent in July. Talking about the wholesale Price Index (WPI), it grew 12.07 per cent in June. Apart from that, the WPI was revised to 13.11 per cent from 12.94 per cent, for the month of May. 

"Inflation in the near term should be trending lower (probably briefly below 5 per cent), partly led by favorable base effects and also as supply-side bottlenecks begin to fade. However, the indirect and multiple cascading impacts of elevated fuel prices, elevated commodity prices, rising freight costs, and an expected pickup in demand in the months ahead pose risks of persistence of high inflation.  We expect inflation to be broadly hovering in the 5-6 per cent range in 1H 2022 after a near-term downtrend" said Bhardwaj.

A possible third wave of COVID-19 and effects: As per health experts, COVID-19 third wave is looming large and could hit India in October. Talking about this further effect on the economy, Bhardwaj said, "While the loss of lives was significant, the impact of the second wave on economic activity was far lower than the first wave given the localized and less stringent nature of restrictions. With vaccinations picking up pace, we expect restrictions to again be limited and more localized, which should have a limited impact on activity. Nonetheless, we will have to remain vigilant on the pace and widespread nature of the third wave to gauge the exact impact.