‘Recovery expected to strengthen in second half of 2021-22; fuel tax cuts to ease Inflation’
India’s economic recovery is expected to gain further strength in the second half of this year, following the 8.4% GDP growth recorded in Q2, the Finance Ministry said on Saturday, citing preliminary evidence that the Omicron variant of COVID-19 may be a ‘less severe’ risk.
Stressing that India is one of the few countries to record four consecutive quarters of growth amid COVID-19, the ministry said the country will catch up with pre-pandemic levels of economic activity for the full year of 2021-22.
A revival in services combined with a full recovery in manufacturing and sustained growth in the agriculture sector helped take GDP output in the second quarter to more than 100% of the pre-pandemic levels in 2019-20, the Department of Economic Affairs (DEA) said in its monthly economic review for November.
“The recovery suggests kick-starting of the investment cycle, supported by surging vaccination coverage and efficient economic management activating the macro and micro drivers of growth,” the review noted.
“India’s economic recovery is expected to gain further strength in the remaining quarters of the financial year, as evident from 19 among 22 High Frequency Indicators (HFIs) in September, October and November of 2021 crossing their pre-pandemic levels in the corresponding months of 2019,” it averred.
While the ministry expects India to be ‘among only a few economies in the world to rebound strongly from the COVID-19 induced economic contraction of 2020-21’, it added a conditional caveat about the Omicron variant posing a risk to the global recovery process.
“However, preliminary evidence suggests that the Omicron variant is expected to be less severe and more so with increasing pace of vaccination in India,” it said.
While retail inflation stayed stable in October, the ministry expects price pressures to ease up in the months to come thanks to the recent excise duty cuts on fuel.
“…Wholesale inflation climbed up to 12.5% in October driven by fuel and manufacturing segments attributable to rising input cost inflation and global energy prices. Going forward, reduction in fuel excise duty by Central Government, with State Governments following suit, is expected to ease the inflationary pressures through second-round effects in coming months,” it reckoned.
On Monday, the National Statistical Office is scheduled to release the Consumer Price Index that measures retail inflation, for November. The Centre had announced duty cuts in petrol and diesel in the first week of that month.
