Lucky for the third time?: On the economy and the third COVID-19 wave

India’s post-COVID economic recovery is delicately poised at the turn of the new year – the third year in a row under the shadow of the pandemic. With less than four weeks left for the Union Budget for 2022-23, the latest data capturing various aspects of the economy paints a mixed picture with persistent pressure points. The COVID-19 restrictions are already denting the order books of India’s service exporters, even as merchandise exports hit a record high in December. Worryingly, however, is that imports grew faster than exports last month, leaving the trade deficit at an all-time high of $22 billion, down from a record $22.9 billion in November. Eight core sectors had a disappointing November, but GST collections from that month were healthy around Rs 1.3 lakh crore despite a three-month low. GST Compensation Cess revenue hit a record high in November, but customs collection fell to a five-month low. The Purchasing Managers’ Index (PMI) for manufacturing and services was strong for December but has eased from previous months, even as input cost pressures remain a headache for businesses, as well as the latest virus wave. Likely to be normal again. For the first time in four months, firms surveyed for PMI by IHS Markit reported ‘broad-based’ job losses in manufacturing and services in December. Global headwinds are shifting following a surge in COVID cases and disruptions, even as inflationary forces have central bankers poised for a hike in interest rates from the US Federal Reserve this year.

It will be challenging for North Block’s Mandarins to devise an appropriate mix of relief and support measures for businesses and jobs alike – preferably going beyond credit guarantees that seem to have lost traction in recent months with restrictions and disbursements. This needs to be accompanied by a fresh increase in health care spending, including for COVID vaccination and booster shots, as well as maintaining a bullish stance on public capital expenditure aimed at getting the real projects off the ground. The potential for more disruptions is large, even though their extent and impact on GDP are uncertain at this point. It may be a good idea to prepare for the worst, even if it is accepted that manufacturing suffered less in the second wave during the initial lockdown in 2020, and possibly even better equipped to deal with the ongoing third wave method can be prepared. Still, there is a risk that the damage to the contact-intensive service sectors, which have had another tumultuous year with millions of jobs, and have struggled hard through the first two waves, could be permanently weakened this time around. Could, if mobility matters with restrictions spiral. More effective interventions, with a stable and clear articulation of policy direction, can have a calming effect in 2022.