‘Demand takes big hit on second wave’

As the second wave of COVID-19 overwhelmed India and the world, the real economy indicators moderated through April-May 2021, senior officials of the Reserve Bank of India wrote in the RBI’s monthly bulletin.

“The biggest toll of the second wave is in terms of a demand shock — loss of mobility, discretionary spending and employment, besides inventory accumulation” while the aggregate supply was less impacted, they wrote.

“The resurgence of COVID-19 has dented but not debilitated economic activity in the first half of Q1... Although extremely tentative at this stage, the central tendency of available diagnosis is that the loss of momentum is not as severe as at this time a year ago,” they added. In an article on ‘State of the Economy’, the officials including Deputy Governor Michael Debabrata Patra observed that agriculture remained robust at this critical time and industrial production surged after a two-month contraction on the tailwinds of a large favourable base effect.

The impact of the new infections appeared to be U-shaped, they posited.

‘Weathering the storm’

“Each shoulder of the U represents sectors that are weathering the storm — agriculture at one end and IT on the other. On the slopes of the U are organised and automated manufacturing on one side and on the other, services that can be delivered remotely and do not require producers and consumers to move. These activities continue to function under pandemic protocols,” they wrote.

In the well of the U were the most vulnerable — blue collar groups that had to risk exposure for a living and for the rest of society to survive; doctors and healthcare workers; law and order; municipal personnel; individuals eking out daily livelihoods; small businesses, organised and unorganised — and they warranted priority in policy interventions, the officials observed.

“It is in this direction that the Reserve Bank, re-armed and re-loaded, has stepped out... The road ahead is fraught with danger, but India’s destiny lies not in the second wave, but in life beyond,” they added.

NBFCs hit hard

In another article on the performance of NBFCs during the pandemic, the bank’s officials wrote that as the pandemic disrupted economic activity significantly, Non-Banking Financial Companies were hit hard. During Q2 and Q3 of FY21, the consolidated balance sheet of NBFCs grew at a slower pace.

“However, NBFCs were able to continue credit intermediation, albeit at a lower rate, reflecting the resilience of the sector. Among sectors NBFCs lend to, industrial sector, particularly micro and small and large industries, were the hardest hit by the pandemic as they posted decline in credit growth,” the article’s authors added.

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Printable version | Jun 18, 2021 8:27:43 PM |

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