The devastating second wave of the coronavirus pandemic in April-May is estimated to have cost the nation Rs 2 lakh crore in terms of output, revealed an assessment made by the Reserve Bank. The second wave’s toll is mainly in terms of the hit to domestic demand on account of regional and specific containment rather than a nation-wide lockdown, it said.
“The impact of the second wave is hence estimated at about Rs 2 lakh crore of lost 2021-22 output,” said a recent article on the ‘State of Economy’, written by functionaries of the central bank. Moreover, this wave has fanned into smaller cities and villages, sapping rural demand. The support from government spending may also moderate from the extraordinary expansion undertaken last year, it said.
“On the brighter side, several aspects of aggregate supply conditions such as agriculture and contactless services are holding up amidst pandemic protocols. Industrial production and exports have surged on strong base effects, but there is also evidence of positive momentum,” the authors said.
They further said that “at the cost of reiteration, it is vaccination which will shape the recovery.”
The article, published in the RBI’s monthly Bulletin, stressed that speed and scale of vaccination against COVID-19 will shape the path of economic recovery which has the resilience and the fundamentals to bounce back from the pandemic and unshackle itself from pre-existing cyclical and structural hindrances.
Observing that vaccines by themselves will not end the pandemic, the article said “we have to learn to live with the virus, complementing vaccines with ramping up investment in healthcare, logistics and research.”
“The pandemic is a real shock with real consequences. Hence, there is a need to ensure that the recovery is built on a solid foundation of business investment and productivity growth,” it added.
The RBI said views expressed in the article are those of the authors and do not necessarily represent the views of the Reserve Bank of India.
For 2021-22, the Reserve Bank has projected real GDP growth of 9.5 per cent on the assumption that the impact of the second wave will be limited to the first quarter of the fiscal in which strong base effects from last year’s precipitous contraction will come into play.
Last month, the National Statistical Office (NSO) revised India’s real GDP for 2020-21, revealing a shallower contraction (-7.3 per cent) than earlier estimated, with brighter outcome for the fourth quarter (January-March 2021).