Loan moratorium. ‘Second wave not a big blow to economic activity in first half of Q1’

The resurgence of Covid-19 has dented but not debilitated economic activity in the first half of Q1 (April-June) FY22, according to an article in the Reserve Bank of India’s latest monthly bulletin.

Loss of momentum

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, it added.

“The ferocity of the second wave has overwhelmed India and the world. War efforts have been mounted to stop the second surge in its tracks,” according to the article, ‘State of the Economy’, put together by 18 RBI officials, including Deputy Governor MD Patra.

They estimated that real economy indicators moderated through April-May 2021 as many States imposed restrictions to arrest the renewed surge in infections.

The authors observed that 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 is less impacted.

Impact of new infections

The authors opined that the impact of the new infections appears to be U-shaped. 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,” the article said.

According to the authors, in the well of the U are the most vulnerable – blue collar groups who have to risk exposure for a living and for rest of society to survive.

The aforementioned groups include doctors and healthcare workers; law and order; and municipal personnel; individuals eking out daily livelihood; small businesses, organised and unorganised – and they will warrant priority in policy interventions.

The authors underscored that: “It is in this direction that the Reserve Bank, re-armed and re-loaded, has stepped out. This is the beginning. There is more work to be done.”

As per the article, the data show that the wave is shifting from big cities to small towns and villages where testing is low and health infrastructure poor, and this is where the country must refocus our efforts and energies to put down the virus.

“The key lesson from the visitation of the second wave is vaccinate, vaccinate, vaccinate...The road ahead is fraught with danger, but India’s destiny lies not in the second wave, but in life beyond it,” said the authors.

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