NEW DELHI: Stressing that faster vaccination holds the key to an escape from the pandemic, the RBI on Thursday said the macro-economic costs of the second wave of Covid-19 can be limited to the first quarter of 2021-22 with possible spillovers into July.
“This is the most optimistic scenario that can be envisaged at this juncture — it provides a limited window to establish strict pandemic protocols and logistics, ramp up vaccines production and medical supplies, fill gaps in the health infrastructure and build up stocks, especially of vaccines, in preparation for the next wave of infections,” the report said. “In all other outcomes, losses in terms of lives, employment and output are likely to be adverse and long-lasting. Given the size and sophistication of India’s pharmaceutical industry, there is certainly hope that India can leverage on its strength and contain future waves,” the report added.
Highlighting the turn that the pandemic has taken in May, RBI said that increasingly, country experiences underscore the paramount need for speedy and universal vaccination on a war footing.” The virus will mutate as long as it stays with humans, nobody is safe until everyone is safe,” the report said. The central bank said that mutant strains, slow pace of inoculation in several parts of the world and visceral vaccine protectionism has once again turned domestic and global outlook grim.
“While the economy has not moderated to the extent during the first wave, the surrounding uncertainties can act as a deterrent in the immediate period. On the supply side, agriculture has proven its resilience, enduring the shock of the pandemic, thus providing support to rural demand and the economy at large,” the report said.
It said that in the case of services, recovery has been varied, with the revival in construction, trade, freight transportation and information technology (IT) related activities. While the performance of contact-intensive sectors is still sub-par, it is also improving. “Going ahead, as the vaccination drive picks up and cases of infections fall, a sharp turnaround in growth is likely,” the report said.
On inflation, the evolving CPI inflation trajectory is likely to be subjected to both upside and downside pressures. “The food inflation path will critically depend on the temporal and spatial progression of the south-west monsoon in 2021. Second, some respite from the incidence of domestic taxes on petroleum products through coordinated action by the centre and states could provide relief, although international crude oil prices continued to be volatile,” the report said.
It said that a combination of high international commodity prices and logistic costs may push up input price pressures across manufacturing and services. “Taking into consideration all these factors, CPI inflation is expected to average 5% during 2021-22, – 5.2% in Q1; 5.2% in Q2; 4.4% in Q3; and 5.1% in Q4, with risks, broadly balanced. During April 2021, inflation moderated on favourable base effects, it said.





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