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Economy showing signs of revival due to targeted fiscal relief

NEW DELHI: Indian economy is showing signs of revival from the second wave of the COVID-19 pandemic with targeted fiscal relief, monetary policy, and a rapid vaccination drive, said Finance Ministry in its monthly economic review for June 2021.

However, the economic recovery remains uneven as indicators such as port traffic, air traffic, purchasing manager’s index (PMI), and services show a lagged revival from the impact of the second wave.

The manufacturing sector declined last month for the first time in 11 months, due to the impact of the second wave and lockdown restrictions announced by several states. The IHS Markit India manufacturing PMI which is adjusted seasonally, recorded 48.1 in June, compared to 50.8 in May 2021.

Similarly, the activity in the country’s services sector contracted sharply in June as strict restrictions on mobility to arrest the spread of the COVID cases affected demand and resulted in job losses across sectors. The IHS Markit’s Services PMI declined to 41.2 in June 2021 from an already depressed 46.4 in May, which was its lowest reading since July 2020, and well below the 50-level separating growth from contraction.

The country’s domestic traffic was 71 percent lower in May 2021, compared to the corresponding period in 2019 amid the emergence of the Delta variant of COVID-19, according to global airlines body International Air Transport Association (IATA).

The latest industrial production estimates register a sequential moderation in the growth of the eight core industries at 16.8 percent year-on-year in May 2021, eight percent lower than the pre-COVID level in May 2019.

The healthy monsoon coverage, gradually rising Kharif sowing and unlocking of states is expected to ease food, and headline inflation. However, risks due to global demand-led recovery in commodity prices and input cost pressures remain, according to the finance ministry’s report.

The country’s average daily vaccination rate in June doubled to 41.3 lakh doses, compared to 19.3 lakh in May 2021, crossing the 36 crore mark in its cumulative vaccination coverage, said the finance ministry in its monthly economic review.

The country has crossed the 35 crore mark in its cumulative COVID vaccination coverage with 21 percent of the population covered under the first dose and 4.6 percent of the population fully vaccinated. Further expansion of the vaccination drive and strict adherence to COVID-appropriate behavior will be crucial to safeguard against the emergence of a possible third wave, the report added.

Last month, Finance Minister Nirmala Sitharaman announced eight economic measures to ease the financial impact of the second wave of the pandemic and to provide relief to the stressed sectors of the economy, with a special focus on health and tourism.