FinMin Announces Impact of 2nd Covid Wave Likely to be Muted

The finance ministry on Tuesday said the economic impact of the second wave of the Covid-19 pandemic is likely to be muted and there are visible signs of economic rejuvenation.

The latest Monthly Economic Review, released by the finance ministry, said that the "robust recovery in tax collections cushions the fisc towards meeting the budgeted support to the economy".

It also said the recent sero-prevalence results signify that India can reduce the likelihood of severe illness due to Covid-19 if the country sustains the momentum of the vaccination programme.

"Having antibodies reduces the probability of acquiring serious illnesses, as is borne by studies. So, any subsequent waves are expected to be mild in terms of severity of disease," the ministry said in the report.

However, it is imperative that Covid-appropriate behaviour and due protocol is followed.

At this juncture, it said, the economy and society are at a crucial inflection point where sustenance of economic recovery, vaccination progress and Covid-19 appropriate behavioural strategies are needed in close synergy with each other.

With the second wave abating in most parts of the country and state governments lifting the restrictions in phases, there are visible signs of economic rejuvenation since the second half of May. "This resonates with the economic impact of the second wave expected to be muted," the report added.

Noting that inflation has remained above the band of six per cent in May and June, the report said these pressures are likely to smoothen out in the coming months, with easing of restrictions, progress of southwest monsoon, and recent supply-side policy interventions in pulses and oilseeds market.

It said that while systemic liquidity continued to remain in surplus in July, a decline in growth of cash in circulation reflected a shift away from the pandemic-induced precautionary savings.

Financial markets demonstrated buoyancy in the month, with post-second wave revival seen in mutual funds, corporate bonds and insurance markets, and volatility in equity markets continuing its downward trajectory.

However, G-sec yield curve steepened mildly owing to inflation pressures, it said.

The ministry added that bank credit growth showed encouraging trends with non-food credit growth crossing the 6.5 per cent-mark in the fortnight ended July 16 after remaining muted for nine fortnights.

On the sectoral front, credit offtake by agriculture and allied activities, micro, small and medium industries registered accelerated growth in June, demonstrating positive effects of the implementation of the Aatmanirbhar Bharat package.

The central government's finances showed an improved performance during the June 2021 quarter as compared to the year-ago period. It was on the back of buoyant direct and indirect tax collections, continued emphasis on capital expenditure with 26.30 per cent growth during the quarter, and re-prioritisation of revenue expenditure, it said.