Calling 2021 a ‘catch-up’ year for the global economy including India, the Finance Ministry has said the nation is looking to go back the pre-pandemic output levels of 2019. Among the factors feeding the optimism is the expectation that the Omicron variant of COVID will be less severe than the earlier ones — particularly since the large proportion of the population is vaccinated, and India is better equipped now to handle a contagion.
“India has not only caught up with its pre-pandemic output of Q2, but is also expected to do so for the full year. The MPC (Monetary Policy Committee) in its December statement has maintained the growth forecast of 9.5% during FY 2021-22, implying a full recovery and a 1.6% growth over the pre-pandemic GDP level of FY 2019-20. India will be among only a few economies in the world to rebound strongly from COVID-19 induced economic contraction of 2020-21,” said the Finance Ministry in the Monthly Economic Review (MER) for November 2021. The document is prepared by the Ministry’s Economic Affairs Department.
Resilience of the economy
India is among the few countries worldwide to have registered four consecutive quarters (Q3 and Q4 of FY21, and Q1 and Q2 of FY22) of growth despite the pandemic, said the report. It reflects “the resilience of the Indian economy,” it said, adding that the recovery was “driven by a revival in services, full-recovery in manufacturing and sustained growth in agriculture sectors”.
“The recovery suggests kick-starting of the investment cycle, supported by surging vaccination coverage and efficient economic management activating the macro and micro drivers of growth,” it added. The Ministry further said in the review that India’s real GDP grew 8.4% year-on-year in Q2 FY22, which marked a recovery of over 100% of the pre-pandemic output in the corresponding quarter of FY20. In the first half (H1) of FY22, the growth stood at 13.7% against H1 FY21.
Among the 22 High Frequency Indicators (HFIs) used by economists, India performed well in 19 during September-November 2021, it said. In that period, the economic indicators were at levels higher than in September-November 2019, said the Ministry. The data further indicate the India’s economic recovery will gain more pace in the remaining quarters of FY22.
Dealing with the Omicron threat
The MER report noted that the Omicron variant may “pose a fresh risk to the ongoing global recovery”. “However, preliminary evidence suggests that this variant is expected to be less severe, and more so with the increasing pace of vaccination,” it said.
Rapid vaccination coverage will, in fact, be among the key drivers of India’s economic recovery, said the Finance Ministry. The other key drivers are upbeat market sentiments, strong external demand and continuous policy support by the government and the Reserve Bank of India (RBI).
Nevertheless, amid the Omicron threat, “COVID appropriate behaviour is warranted”, said the report. But here, too, the economy is better prepared now to “work with COVID”, thanks to growing vaccination coverage and “lessons learnt from second wave in containing the contagion”, it added.