Covid Second Wave: Monthly Economic Review Hints Downside Risk In Q1

The second wave of the coronavirus pandemic is expected to have a smaller economic effect than the first, according to the finance ministry's monthly economic survey.

The Reserve Bank of India's support for liquidity has kept domestic financial conditions comfortable, with open market operations worth Rs 3.17 trillion completed in 2020-21, it said.

"The second wave has presented a downside risk to economic activity in the first quarter of 2021-22," the finance ministry's department of economic affairs (DEA) said in its monthly economic review for April. However, relative to the first wave, there are reasons to believe that the economic effect will be muted. As shown by foreign practise, learning to 'operate with Covid-19' offers a silver lining of economic resilience amidst the second wave."

Hopes on Vaccine

"April saw a doubling of global vaccination rates and a concomitant lowering of average transmission rates in countries with high vaccination rates," the study said, nailing hope on vaccinations. With vaccinations being twice as effective at preventing the spread of disease and protecting the economy, international cooperation is vital to ensuring vaccine access in all countries and resolving inter-country gaps in vaccination rates as soon as possible."

Tax

Net direct tax collection in FY21 is 4.5 percent higher than the updated projections (RE) and 5% higher than in FY20, according to preliminary figures. The collection of net indirect taxes in FY21 was 8.2% higher than the RE and 12.3% higher than the collection in FY20. The collection of the goods and services tax (GST) has been increasing, with the mop-up exceeding Rs 1 trillion in each of the last six months.

Stock Market

In April, the second wave of the pandemic struck market sentiment, with the Nifty 50 and the S&P BSE Sensex losing 0.4 percent and 1.5 percent, respectively, and the Rupee depreciating by 2.3 percent to 74.51 INR/USD. In April, net FPI outflows of US$ 1.18 billion mirrored this trend.
UPI transaction volume and sum more than doubled year-over-year in April, indicating that digital payments are gaining traction.

Trade Deficit
India's trade deficit fell to its lowest level since FY 2007-08 in FY 2020-21, with imports contracting faster than exports. Though drugs and pharma were the most popular exports, safe-haven gold was the most popular import. Economic recovery was manifested in April 2021 by increasing import growth of 166% and 7% over 2020 and 2019 levels, respectively.

The central government and states are focusing on increasing capital expenditure to boost economic growth, while a number of steps are being taken to combat Covid-19, according to the report.

A survey of 213 firms showed a 12.5 percent increase in net sales and a 9.5 percent increase in profits in Q4FY21, indicating a manufacturing turnaround.

CPI/WPI

The CPI-combined inflation rate increased to 5.52 percent, owing primarily to high food inflation. Oil and metal prices, as well as the base impact, drove WPI inflation to an 8-year high of 7.39 percent, surpassing its CPI equivalent for the first time in nearly two years, according to the economic report.