Former CEA Arvind Virmani Former CEA Arvind Virmani takes a stock of the Indian economy in the backdrop of the second coronavirus wave as he takes a few questions on the recovery. Edited excerpts.
Q: How is your reading of the state of the Indian economy? India is continuously seeing downward revisions in its FY22 growth forecast amid a slow pace of vaccination and second covid wave…
Arvind Virmani: The economic forecasts have followed the Covid cycles, being upward when new infections decline and revised downward when they increase. They reveal little understanding of either Covid or lockdowns…
Our latest research on the second Covid wave showed that it is caused by mutations that spread faster and will result in a higher number of cases than the first wave. The model, which was estimated for 21 large states, also showed that the second wave will subside as quickly as it has arisen, and will therefore be over much faster than the first wave.
I expect economic impact of second wave to be limited to Q1, with GDP growth lower than was anticipated in March 2021. The bounce back in Q2 of FY22 will be much faster than expected by most forecasters, and therefore our earlier forecast of 10% +/- 1% remains with downside risk.Former CEA Arvind Virmani
Q: Could India have dealt better with the second coronavirus wave with regard to mitigating the economic impact?
Arvind Virmani: Our analysis shows that the mutated virus started spreading around the middle of February and accelerated in March.If action to fill gaps in Covid management (separating moderate and serious streams) and treatment infrastructure (for example, Oxygen, facilities for moderate case) had been initiated in late March, the chaos that followed the explosion of cases in mid-April could have been avoided and more lives saved.
The economic effect would have been a smaller depletion of savings in Q1 FY22 and a faster, more assured recovery in Q2.
Q: How do you see recovery from here?
Arvind Virmani: The manufacturing, mining sectors will recover quickly once lockdowns are lifted in all states by June end. The states in which the second wave took off earlier will also see an earlier reduction of new cases and thus tend to lift restrictions quicker.
I expect almost all states to have lifted most new restrictions by the end of June. Contact sectors like hotels, restaurants, and hospitality (marriage parties), will continue to be negatively affected by contagion fears.Former CEA Arvind Virmani
It is therefore very important for the government to incentivise the installation of better ventilation systems in factories and offices, better air filters (HEPA) in air-conditioned halls and buildings and UV ceiling lights (for safely killing virus) in small, crowded rooms used by the public (e.g. restaurants, bathrooms, kitchens).Q: Do you think it is time to print the money?
Arvind Virmani: One of the objectives of monetary policy during a period of massive uncertainty is to keep interest rates.
As government securities are the anchor to which the structure of interest is benchmarked, it was critical to keep interest rates on government securities low and stable. The RBI was successful in doing so during 2020-21.
Purchase of securities in the primary market is just one way of doing so (what you call printing money). The objective remains unchanged during Q1 of FY222, given the new Covid wave.
In my view, however, the best method for ensuring the stability of the government security rate is best left to professionals in the RBI, who together have much more information about the ground situation, than isolated experts.Former CEA Arvind Virmani
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