‘Vaccination key to health of economy,’ says K.V. Subramanian

The economic impact of the second wave of the COVID-19 pandemic may not be very large at this point but curbing the pandemic through swift vaccination and strict COVID-19 protocols is imperative to revive economic activity, Chief Economic Adviser K.V. Subramanian said on Monday.

“Vaccination is important for the health of the people as well as the health of the economy… The economic impact is inextricably linked to the overall pandemic itself. The economy had recovered very well by March but then the second wave has moderated the momentum,” he said during a briefing on the state of the economy.

While the spate of lockdowns across States is beginning to hurt the economy, the second wave of the COVID-19 pandemic has peaked in early May and the restrictions imposed so far have been ‘asynchronous and heterogenous’ and hence the decline is not likely to be as bad as last year, the CEA said.

“There has been an internal assessment on the costs of the restrictions… Whether or not it (growth) will be in double digits or single digits, there is uncertainty. Some of the scientists are talking about the possibility of a third wave – we don’t know when it will be and what will be the impact. It would be speculative to tell you exact numbers,” Mr. Subramanian said, terming the Economic Survey and Budget’s GDP growth estimates for 2021-22 (11% and about 10.5%, respectively) as ‘conservative’.

‘Immense uncertainty’

“The caveat with everything related to the pandemic, is that estimates are subject to immense uncertainty given that the trajectory of the pandemic has been hard to predict even for epidemiologists,” Mr. Subramanian pointed out.

He said he expected manufacturing to do well this year, and non-contact-intensive services will also see an enhanced demand due to the feedback effects from manufacturing.

“For contact-sensitive services sectors to come back…, will depend on the path of the vaccination itself,” he said.

‘Impact of restrictions’

Referring to the moderation in several indicators over the past month, the Chief Economic Adviser said: “Clearly, the restrictions imposed by the States have had some impact, but as the wave seems to be on the decline, we do anticipate that these restrictions will progressively reduce and later be removed, which may help in bringing back economic activity.”