Despite intense second wave, India reasserts V-shaped recovery: Economic Review

The Monthly Economic Review released by the Department of Economic Affairs stated that despite the impact of the second wave, India reasserted its V-shaped recovery. Even as the FY22 Q1 output was impacted by the severe second wave, it was large enough to post a year-on-year growth of 20.1 per cent, recovering more than 90 per cent of pre-pandemic Q1 output of FY20.

“India’s real GVA has also grown to a similar extent YoY at 18.8 per cent posting a recovery of more than 92 per cent of its corresponding pre-pandemic level. These estimates reaffirm India’s resilient V-shaped recovery despite an intense second wave!,” stated the report.

The devastating second wave moderated the momentum that the country witnessed from the second half of FY21. The second wave led to necessitated lockdowns and mobility restrictions, resulting in slackening of economic activity in the first quarter of FY22. Eight core industrial output, PMI manufacturing, steel consumption, auto sales, tractor sales, petroleum products consumption, port and air traffic, PMI services, highway toll collections, GST collections and UPI transactions all point towards that trend, the report stated.

Quoting NSO data, the report added that real output of Q1 FY22 declined by 16.9 per cent but it could have been more had it not been for the rapid pace of vaccination.

On the supply side, growth in output was broad-based across sectors but on a lower base. Meanwhile, real GVA growth did not make a uniform recovery as compared to pre-pandemic levels. “While real GVA growth in agriculture and allied sectors never contracted, real GVA in electricity, gas, water supply and other utility services have shown the largest extent of recovery, being able to cross the corresponding pre-pandemic levels,” stated the report.

When it comes to the demand side, consumption, investment, exports and imports grew at 13.8 per cent, 55.3 per cent, 39.1 per cent and 60.2 per cent respectively in Q1 FY22, albeit from lower bases of FY21.

The Monthly Economic Review stated that broad-based swift recovery of both demand and supply side components bear testimony to India’s strong macroeconomic fundamentals. It stated that the macroeconomic fundamentals were barely shaken amid the worst pandemic of the century in FY21. In fact, the macroeconomic fundamentals were stronger in FY21 than in 2008-09, during the Global Financial Crisis.

“Thus, India is poised for an even faster recovery and stronger growth, both in the short and long term on the back of stronger macroeconomic fundamentals supported by structural reforms that enable enhanced efficiency and productivity. In addition, the government's capex push to crowd-in private investment and financial sector clean-up will further support growth,” stated the report.

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