RBI: 2nd wave hits domestic demand
The second wave of the Covid-19 pandemic has hit domestic demand. Going forward, the speed and scale of vaccination will shape the path of recovery, the Reserve Bank of India (RBI) said in its monthly bulletin for June 2021 released on Friday. It observed that while vaccines will not end the pandemic by themselves, “the country will 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. Lifeand work-style transformation such as increased remote work and online shopping may likely endure. When patterns of demand shift, some firms may face closure. Some industries may become permanently smaller. At the same time, existing firms in industries experiencing increa-sed demand may expand and new ones will emerge. What matters is that resources are put to their best use and that reallocation occurs smoothly and with as few costs as possible,” said the central bank.
An influential view identifies three sectors with the greatest growth potential in the postrecovery decade—digital technologies; biomedical science (along with its applications in health care); and technologies that address the various challenges to sustainability, especially those pertaining to climate change, said the RBI.
Commenting on the state of the economy, the central bank has said that while the second wave has hit domestic demand, on the brighter side, several aspects of aggregate supply conditions—agriculture and contactless services—are holding up, while industrial production and exports have surged compared to last year amidst pandemic protocols.
“Going forward, the speed and scale of vaccination will shape the path of recovery. The economy has the resilience and the fundamentals to bounce back from the pandemic and unshackle itself from pre-existing cyclical and structural hindrances. Signs of the ebbing of the second wave of the pandemic are cautiously becoming evident. In fact, the data suggest that the second wave is rolling back almost as fast as it rolled in.”
On June 14, 2021 India’s daily cases fell to a seventh of their peak of
4,14,188 a month ago (May
6). The seven-day average, which smooths out daily fluctuations, also declined by a fifth from its peak of close to 4 lakh. This is also reflected in the doubling rate, which increased to 247 days from its trough of 34 days at the end of April.
The daily positivity rate, which had peaked at 22.7 per cent in early May, plummeted to 3.8 per cent, remaining below 10 per cent for the 14th consecutive day, and dipping even lower than the first wave’s peak of 11.7 per cent at end-August 2020. Recoveries outnumbered fresh cases for the 36th day, taking the total number of recoveries in India past 2.8 crore.
On the fiscal framework and quality of expenditure in India, the RBI noted that the pandemic necessitated an overwhelming fiscal response.