COVID-19 Second Wave Dips, But Demand is Yet to Resume

As per RBI, the dip in the COVID-19 second wave and vigorous vaccination has brightened the economic prospects, although an increase in the demand might take some time. In June, RBI observed a rise in attendance and mobility indicators at workplaces, a hike in advance tax payments, digital transactions, power consumption, and other indicators. These indicators could be regarded as forerunners in improving businesses and enhancing consumer confidence.

Though various high-frequency indicators concerning activity show a credible hike in aggregate demand is still yet to resume.

On the supply front, the revival of the manufacturing and services sector has been deferred due to the COVID-19 second wave. However, agricultural conditions are getting better with the onset of the monsoon. 

The economy is grappling to revive the momentum of recovery, which had begun in the second half of 2020-21; however, it was deferred due to the second wave. During June-November 2020, inflation was above the tolerance band; in May and June 2021, inflation has again moved above the upper tolerance threshold.

Even though the second wave is dipping, there has been an increase in the infection rate again. Authorities are worried that tourism and pilgrimages might manifest as ‘superspreader’ events. In June, the increase in retail inflation was less than anticipated but remained above the central bank’s target band of 2% to 6% for the second month in a row.

Although there has been a GDP growth of 9.5% in 2020/21, there might be considerable slack in the economy, and an increase in demand might take more time.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in