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India’s economy may grow at world’s fastest rate in FY22 despite Covid shock

India's economy is likely to grow at the fastest rate among all other major economies this year despite the deadly second Covid-19 wave. However, the projected 10% growth annual rate will depend on two key factors. Here is all you need to know.

UPDATED: May 31, 2021 17:47 IST

India’s economy has been predicted to grow at the fastest rate among all major economies in the world this year despite the disruption caused by the second wave of the Covid-19 pandemic.

At the moment, India’s economy is on track to grow at 10 per cent in the fiscal year 2021-22, according to a median of 12 estimates compiled by Bloomberg news.

It may be noted that the estimate has been shared after several rating agencies downgraded previous growth forecasts for India due to the impact on the economy triggered by local lockdowns during the second wave of Covid-19.

However, economic recovery and annual growth rate will depend on two key factors — demand and relaxation of local lockdowns.

While the second wave’s toll on the economy is not as severe as in 2020, local restrictions have been imposed in most parts of the country, resulting in reduced mobile and economic activity.

RECOVERY HURDLES

Economists believe that the strength of the economic rebound will mainly depend on how quickly states can relax restrictions and the willingness of consumers to spend on discretionary items.

Some states have started easing restrictions, but India is still reporting over 1.5 lakh Covid-19 cases per day. In such a scenario, ramping up vaccinations seems to be the best way to reduce cases as it will allow states to unlock faster.

Another key factor that could impact India’s economic growth is slower demand recovery. After the first wave of coronavirus, the country witnessed a sharp rebound in demand for discretionary items, aided by the festive season that started in October 2020.

Many economists suggest that the situation is different this year with respect to demand. They say that demand recovery is likely to be slower due to higher spending on health in view of the deadlier wave of Covid-19 in 2021.

Consumer sentiment data also suggests that households may not be keen on spending as aggressively as last year due to lower savings and higher spending on essential items like healthcare and fuel.

The severe wave of the pandemic has also impacted jobs, though not as bad as last year. Data from Mumbai-based think tank Centre for Monitoring India Economy (CMIE) suggests that the unemployment rate is likely to touch 10 per cent in May. This, too, will have an impact on demand for a longer period.

The Reserve Bank of India May bulletin also indicated that the Covid-19 situation during the second wave has resulted in a “demand shock” and would pose a major challenge to recovery.

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