Second wave’s economic impact
Immediate universal vaccination is the only effective way to save the economy
As India completes the first month of fiscal year 2021-22, it is facing a severe second wave of Covid-19 infections. Daily cases continue to remain high. Some parts of the country are under lockdowns or similar restrictions, and more are expected to join them. The Nomura India Business Resumption Index had fallen to 83.8 in the week ending April 18. This will most probably go below 80 in the week ending April 25 and could fall further in the days to come. All this suggests that the second wave will extract a large economic cost. Usual economic indicators, however, will not capture the true magnitude of this cost. The reason is a favourable base effect, on account of the 68-day lockdown, which was imposed on March 25, 2020.
For example, the index of eight core sector industries for March will be released this week. It contracted by 4.6% on a year-on-year basis in February 2021. We could see a statistical improvement in the number March onwards because it suffered a huge contraction March 2020 onwards. These numbers were a contraction of 8.5%, 37.9% and 21.4% in March, April and May 2020. The same logic will hold for other economic indicators. It is extremely important that these numbers, skewed by the base effect, do not lead to complacency on the economic policy front.
The Controller General of Accounts will release the provisional revenue and expenditure situation of the central government for the fiscal year 2020-21 soon. Media reports suggest that revenue collection has surpassed the revised estimates. But this does not mean all is well. Petroleum taxes have played a big role in pushing up indirect tax collections. There are genuine doubts on the sustainability of this route without stoking inflation. And the revised estimates themselves were a sharp reduction from the budget estimates. If the GDP growth for 2021-22 is compromised because of the second wave, then revenue numbers for 2021-22 could also disappoint. This will adversely affect spending too. Both the Centre and states are focused on boosting medical infrastructure to save lives at the moment, and rightly so. This, however, should not lead to negligence on the vaccination front, either in terms of poor states being left behind in procuring vaccines or vaccine makers being unable to expedite supplies. Immediate universal vaccination is the only effective stimulus at the moment.