The Ministry of Finance said that though the second wave of the coronavirus pandemic has posed a downside risk to economic activity in the first quarter of the financial year 2021-’22, the devastating surge in infections will have a “mutated economic impact” as compared to the first wave.
The observations were made in the finance ministry’s Monthly Economic Review Report for April, when the country went through its darkest chapter of the coronavirus pandemic, with daily new highs of cases, deaths and positivity rates.
The ministry said the surge in infections had undoubtedly presented a challenge to ongoing economic recovery. “With the second wave of Covid-19 infections forcing localised or state-wide restrictions, there is a downside risk to growth in the first quarter of FY:2021-22,” it added.
The impact of growing Covid infections and consequent restrictions was also evident from indicators like the mobility indicator, which fell to -37% in April 2021 from around -22% in the preceding month, the finance ministry’s report said.
Yet, the ministry said there were reasons to expect that the impact won’t be as serious as compared to the first wave of the pandemic last year. Experience from other countries suggested that economic impacts from subsequent waves are smaller than from the first as economies learn to “operate with COVID”, it added.
“Consumer confidence for the current period has weakened in March 2021 as the current situation index (CSI), as per RBI Surveys, dipped on the back of deteriorating sentiments on general economic situation, income and prices,” the report said.
But respondents have expressed optimism for the year ahead, the finance ministry said, adding that sentiments on all major parameters except prices “remained in positive terrain”.
“With higher essential spending vis-a-vis a year ago, most consumers reported higher overall expenditure, which is expected to increase further in the coming year despite continuing moderation in discretionary spending,” it added.
The ministry said the respondents were also optimistic about the business situation, employment conditions and turnover for first quarter to third quarter of FY 2021-’22, while infrastructure companies were “expecting a sharp uptick in the overall business situation”.
Acknowledging the role of vaccine as doubly effective in “battling the spread and shielding the economy”, the ministry said the need of the hour was to expand vaccination at a fast pace. It also called for global cooperation, saying it was critical to ensuring availability of vaccines in all countries and addressing inter-country disparities in vaccination rates at the earliest.