Speed, scale of vaccination to shape recovery: RBI


The economy has the resilience and the fundamentals to bounce back from the Covid-19 pandemic and unshackle itself from pre-existing cyclical and structural hindrances, according to an article in the Reserve Bank of India’s latest monthly bulletin.

The hindrances have caused the economy’s trajectory of output to deviate from potential into a negative output gap since 2019-20Q4 (January-March).

Output gap is the percentage deviation of actual output from its long-term trend.

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“The Indian economy continues to wrestle with the second wave of the pandemic, though cautious optimism is returning, with greater improvement expected by early July, as predicted by statistical/mathematical models.

“By current assessment, 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,” as per the article “State of the Economy” put together by RBI officials, including Deputy Governor MD Patra.

Moreover, this wave has fanned into smaller cities and villages, sapping rural demand.

The authors estimated the impact of the second wave at about ₹2-lakh crore of lost 2021-22 output.

Govt spending

They observed that support from government spending may also moderate from the extraordinary expansion undertaken last year

The authors opined that on the brighter side, several aspects of aggregate supply conditions — agriculture and contactless services are holding up, while industrial production and exports have surged amidst pandemic protocols.

They emphasised that going forward, the speed and scale of vaccination will shape the path of recovery.

According to the article, going forward, notwithstanding the second wave, GST (Goods and Service Tax) collections in 2021-22 (so far) have fared better than in 2020-21, infusing optimism that the revenue base for states will be protected with a growth rate of 7 per cent, and it may result in some surplus to compensate for the shortfall in the previous year.

The gross GST revenue collected in the month of May 2021 was ₹1,02,709 crore, which is 65 per cent higher than the GST revenues in the same month last year.


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