Second wave disrupted economic momentum of fourth quarter. Recovery to pre-Covid levels depends on vaccination drive.

The normalisation of economic actions, which had begun to achieve traction within the third quarter (October-December) of the final monetary 12 months, gathered momentum within the fourth quarter (January-March). In accordance to information from the Nationwide Statistical Workplace, gross home product (GDP) grew by 1.6 per cent within the fourth quarter of 2020-21, up from 0.5 per cent within the quarter earlier than. Gross worth added, a greater indicator of economic exercise contemplating that GDP development is being distorted by the back-ended launch of the federal government’s subsidy funds, grew by a good greater 3.7 per cent within the fourth quarter — indicating that the financial system had surpassed pre-Covid levels within the second half of the 12 months. For the total 12 months, the NSO has now pegged the contraction at 7.3 per cent, decrease than its earlier expectation of a 8 per cent decline.

The stronger than anticipated efficiency within the fourth quarter was pushed by a bigger than anticipated pick-up in building and manufacturing. The development sector grew by a strong 14.5 per cent, whereas manufacturing exercise rebounded by 6.9 per cent. Whereas directionally not a shock, this upswing is greater than was anticipated. Worryingly, nonetheless, commerce, lodges, transport, communication and providers continued to contract, although the tempo of decline seems to have moderated. Non-public consumption rebounded mildly after contracting for 3 straight quarters, whereas each funding exercise and authorities spending picked up tempo — the latter benefiting from greater subsidy funds. The Centre’s subsidy funds have exceeded its revised estimates by a staggering Rs 1 lakh crore.

The glimmer of excellent news within the fourth quarter however, there’s trigger for concern. First, the restoration noticed within the company sector appears to be pushed largely by the larger corporates, with the smaller firms persevering with to battle. Second, these quarterly numbers don’t current an correct portrayal of the casual financial system which is probably going to have fared worse. How the smaller firms and the casual financial system fare could have a bearing on the employment prospects, and the sturdiness of the restoration. Third, the second wave of the pandemic and the resultant restrictions on actions imposed by state governments have disrupted this momentum within the economic actions within the interval thereafter. Whereas the disruption isn’t as extreme as final 12 months, sequentially, there seems to be a pointy dip in actions. However as the bottom impact will distort numbers, one should be cautious in deciphering the info because the year-on-year numbers will nonetheless look good. Though new infections have fallen significantly over the previous few days, the economic outlook continues to look unsure. How shortly economic actions bounce again to levels earlier than the second wave will rely on the trajectory of the pandemic, the timelines for the rollback of the localised restrictions imposed by states governments, and the tempo of the vaccination drive.

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