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. Admitting that the second wave of the pandemic has posed a downside risk to economic activity in the first quarter of FY2021-22, the report said "there are reasons to expect a muted economic impact as compared to the first wave. Learning to 'operate with COVID-19', as borne by international experience, provides a silver lining of economic resilience amidst the second wave".
According to the report, the central government's fiscal situation has improved in recent months, with economic activity picking up in the second half of FY2020-21. Net direct tax collections for 2020-21 are 4.5 percent higher than Revised Estimates (RE) and 5% higher than collections in 2019-20, according to provisional figures. The significant growth compared to 2019-20 indicates that the economy has recovered since the first wave.
Due to economic recovery, GST mop-up increased and collections exceeded Rs 1 lakh crore in each of the last six months, it said, adding that GST revenue reached a new high of Rs 1.41 lakh crore in April, indicating that the recovery is continuing. The second wave of the pandemic, however, had an effect on market sentiment, with the Nifty 50 and the S&P BSE Sensex losing 0.4 percent and 1.5 percent, respectively, in April, and the rupee depreciating by 2.3 percent to 74.51 INR/USD. In April, net FPI outflows of USD 1.18 billion mirrored this trend.
Domestic financial conditions, however, have remained stable as a result of the RBI's liquidity support, with open market operations worth Rs 3.17 lakh crore carried out in 2020-21, according to the statement. The launch of G-SAP 1.0, which aims to handle the yield curve in a predictable and orderly manner, is a significant tool for forward guidance. Though overall financial conditions remained accommodative, credit growth remained muted at 5.3 percent as of April 9, 2021, according to the survey. Agriculture, medium industry, and trade services led credit offtake in March, according to the survey, while credit to small and large industry, as well as NBFC services, remained subdued.
The corporate sector was able to raise significant funds from capital markets because of the easy funding conditions, according to the study. According to the finance ministry survey, recent data on corporate earnings indicates a manufacturing turnaround in the fourth quarter of 2020-21, with 12.5 percent growth in net sales and 9.5 percent growth in income for a sample of 213 firms. UPI transaction volume and sum more than doubled year-over-year in April, indicating that digital payments are gaining traction.
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 study. With a normal monsoon and expected supply easing of food products, softening food and fuel prices could provide relief to a potent risk of rising input prices manifesting as retail inflation, according to the study.