Second wave’s economic impact uncertain

We are passing through a very tough time. We had not yet recovered from Covid’s first wave and now we are facing the second wave of the pandemic.

The second wave’s impact on lives and livelihoods has been devastating. Unlike last year, when the government had imposed a nationwide lockdown to curb the spread of Covid infection, this year States imposed lockdowns intermittently to deal with the second wave. Now there is also the threat of a third wave looming.

Growth projections

In the meantime, the National Statistics Office, has released provisional data of GDP for FY21 on May 31. Data shows that the GDP of last fiscal has fallen by -7.3 per cent against first advance estimate of -7.7 per cent and the second advance estimate of -8 per cent at the 2011-12 prices and -3 per cent at the current prices.

If we look at the GDP growth on a QoQ basis, it had achieved a growth of 0.5 per cent in Q321 and that reached to 1.6 per cent in Q4FY21 after falling two continuous quarters, -24.4 per cent in Q1 and -7.4 per cent in Q2. This meant that the economy started recovering but the second wave and an impending third wave may put this recovery at risk.

The rating agencies have their own estimates for FY22 GDP. The IMF projected it at 12.5 per cent while the World Bank puts it at 10.1 per cent. JP Morgan and the Economic Survey’s projections are at 11 per cent, Nomura has pegged it at 12.6 per cent.

However, the government expects a growth rate of 14.4 per cent. The GDP for current fiscal has been projected at ₹222.87 lakh crore against revised estimate of ₹194.82 lakh crore for FY21 at current market prices. The government would have to revise the estimate because the second wave was not considered while estimating it. Thus, the government will have to rework the GDP estimate.

Outlook uncertain

For now we do not know how much the ongoing second wave of pandemic will impact the economy in the current fiscal. It is expected that the impact of the second wave on the economy will be limited in comparison with the first wave. The Finance Ministry is also of the same view that there will be a muted economic impact in comparison to the first wave. Chief Economic Advisor KV Subramanian does not expect the impact on GDP of FY22 to be significant. The fiscal position of the government has taken the path of correction with revival in economic activities since H2FY21.

As per NSO, the real GDP for FY21 is estimated to be ₹135.13 lakh crore against the first revised estimate of GDP for FY20 of ₹145.69 lakh crore at 2011-12 price. Moreover, the SBI estimates also that nominal GDP loss during Q1FY22 would be up to ₹6 lakh crore against the loss of ₹11.38 lakh crore in Q1FY21 and GDP growth would be between 10-15 per cent in Q1FY22. The RBI estimation is 18.5 per cent for the same period.

The country must achieve a growth of ₹10.56 lakh crore to compensate for the loss of FY21 and in other words, and the GDP growth must not be less than 7.8 per cent to reach the pre-pandemic level. The RBI has revised the estimates from 10.5 per cent to 9.5 per cent. The SBI estimates the GDP growth at 7.9 per cent for FY22 — it is the lowest among all projections. But growing at this rate also depends on how we tackle the second wave of ongoing pandemic as it still continues to be a threat to the economy.

Vaccination boost

The pandemic cases have been still surging and hitting new records every day. Previous data suggests that the second wave of pandemic has either already peaked or will peak soon. However, the end of the second wave may still be far away. The country may struggle for years to deal with after effects of the pandemic. The end of the pandemic will bring the economy on track. In the line the first step would be producing and distributing vaccines.

As per India Rating and Research, the total cost of vaccinating India’s entire population above 18 years, stood at ₹0.672 lakh-crore. The government has already allocated ₹0.35 lakh crore to be transferred to States as support for Covid-19 vaccination under demand for grants.

Subsequently, the Centre is providing free vaccines to people who are 45 years of age and above, and all frontline workers. Now, the Centre has taken the responsibility of procuring vaccines. The top court of the country had also said, “the central government should procure vaccines for the entire country”.

The speed of vaccination is critical for the second wave to subside as well as for the economy to recover.

Vinay K Srivastava teaches at I.T.S. Ghaziabad