The finance ministry, in its latest monthly economic review for May, has said the momentum of economic recovery has been "moderated" by the ravaging second wave of COVID-19. "Unlike the first wave, the effect of the second wave has been asynchronous in its onset across states and wider in its spread as the second wave also entered the rural hinterland," the report said.
To avoid or lower the ferocity of subsequent waves, an accelerated vaccination drive is imperative, the finance ministry said. "Vaccinating to achieve herd immunity (75-80 per cent of the population) will boost consumer and producer confidence and reinvigorate the engines of economic growth," it said, adding that for this, challenges related to vaccine supply, hesitancy, operational aspects and widespread reach must be planned in advance.
The report said around 93 lakh vaccinations are required per day to achieve herd immunity by September. "Herd immunity is accomplished when 80 per cent of the population is immune or less susceptible to infection. The key to regaining the momentum of economic recovery is the attainment of herd immunity at the earliest possible. As per India's demographic distribution, 86.5 crore people or 63.1 per cent of the population is above 18 years of age. Assuming herd immunity at 80 per cent, the target population to be vaccinated is 70 crore," said the ministry.
The report said in May, high-frequency indicators such as power consumption, e-way bills and foreign portfolio investment (FPI) flows witnessed an uptick in the second half of May. "Agriculture sector continues to offer comfortable prospects amidst a normal monsoon forecast, smooth food procurement and distribution, and MGNREGA employment," the report said.
Going forward, the trajectory for CPI inflation may derive comfort from the forecast of a normal southwest monsoon, but remains vulnerable to pressures arising from high international commodity prices and logistics costs across manufacturing and services. On the external front, exports grew 7.9 per cent in May over pre-COVID May 2019 levels, reflecting export resilience. Money supply continued to rise 9.9 per cent (YoY) as of May 21, driven by growth in aggregate deposits, it said.
Financial conditions in May remained "conducive" for "economic recovery" with liquidity in surplus, accommodative monetary policy stance and efforts towards smooth policy transmission. "Quickening the pace and coverage of vaccination is critical to help India heal and regain the momentum of economic recovery," the report said.
GDP estimates for January-March quarter of FY 2020-21 confirm a 'V-shaped recovery' in India's economic prospects in the second half of the year after an unprecedented COVID-19 induced contraction, it added. India's real GDP grew at 0.5 per cent in Q3 and 1.6 per cent in Q4 of FY21, leading to an upward revision in annual real GDP growth from (-)8.0 per cent to (-)7.3 per cent contraction in the fiscal year 2020-21.
The ministry said as economic activity resumed after gradual unlocking and policy support, private consumption grew at 2.7 per cent after falling for three consecutive quarters. Moreover, contact-intensive hotels, trade and transport sectors shrunk 2.3 per cent in Q4 after major declines in previous quarters.