THE BEST SHOT AT ECONOMIC RECOVERY
Q HOW BADLY IS THE ECONOMY HIT? AND WHAT IS THE MEDIUM-TERM OUTLOOK, ESPECIALLY IF UNLOCK 2.0 IS GRADUAL?
› RAJNISH KUMAR: The second wave of Covid has slowed down the pace of economic recovery that had picked up. However, since the second lockdown was not as rigid as the first, the economy has not suffered as it did the last time. Also, the number of cases has started coming down, indicating that the peak has been achieved. Under this outcome, the macro-economic costs of this wave can be limited to Q1 2021-22 with possible spillover into July. This is the most optimistic scenario that can be envisaged at this juncture—it provides a limited window to establish strict pandemic protocols and figure out logistics vis-à-vis vaccine production, medical supplies and health infrastructure in preparation for the next wave. In all other outcomes, losses in terms of lives, employment and output are likely to be adverse.
› D.K. JOSHI: Till over 40 per cent of the population is vaccinated (the threshold at which the US and the UK started opening up), the fear factor will be at play and states will have to exercise caution while considering a full unlock. Remember, we are also bracing for a possible third wave.
Mobility indicators reflect the impact of all this on economic activity. Output and employment in contact-based services, like tourism, hospitality and airlines, hit hard by the first wave, continue to be battered this year. That explains the downward revisions of growth estimates to single digit from double digits projected a few months ago.
If vaccine supplies are ramped up after August, as planned, and the rate of vaccination keeps pace, prospects for this fiscal’s second half and the next fiscal would brighten.
Over the medium run, we expect growth to range between 6 and 6.5 per cent annually, supported by private investment and the government’s Production-Linked Incentive scheme. But we will learn about the long-term effects on the economy only over time. Rising inequality and stretched household balance-sheets can constrain recovery. For now, it seems certain that the government will have to do the heavy lifting—not just in the health sector
