The second wave of the COVID-19 pandemic has destabilized the country’s medical infrastructure, leaving citizens scrambling helplessly for oxygen and hospital beds. Economic activity has also started to feel the pinch. If things go downhill from here, India’s already fragile and uneven economic recovery may take a massive hit in the first quarter of this fiscal year (AprilJune 2021), signs of which are visible through some leading economic indicators. The prolonged negative impact of the second wave on consumer sentiment and demand is evident, with healthcare and fuel expenses eating into disposable income and less pent-up/ replacement demand in FY22. Notwithstanding the expectation of a normal monsoon buffering the prospects for crop output and less reverse migration in 2021 compared to 2020, the combination of the sharp rise in rural infections, loss of employment and low remittances is expected to weaken rural sentiment and demand.

India recorded a trade deficit of $ 6,320 million in May 2021, preliminary estimates show. However, foreign exchange reserves increased to $ 605,008 million on June 4 from $ 598,170 million in the previous week.

The second wave of Covid-19 has severely impacted household incomes and jobs as local lockdowns remain imposed in most states. The impact of these local restrictions has been felt more by people working in the informal sector. Over 10 million Indians have lost their jobs, and around 97 percent of households have faced income loss since the beginning of the pandemic last year, as per the Centre for Monitoring Indian Economy (CMIE).

JOBS NIGHTMARE

The unemployment rate is expected to be 12 per cent at the end of May as against 8 per cent in April, and this signifies that about 10 million, or one crore, Indians have lost jobs in this period.

The Reserve Bank of India has stepped up and announced a slew of measures to counter the economic crisis and support health infrastructure in the country. This includes a term liquidity facility of Rs 500 billion (about $ 68 billion) to banks until March 2022 for priority lending to vaccine makers, hospitals, pathology labs, oxygen suppliers, medical equipment suppliers and patients, among others, as well as support for micro and small enterprises, and restructuring of loans for individual and small borrowers for up to two years. While these measures will help ease some pressure on vulnerable sectors, the finance ministry will also have to chalk out a strategy in fiscal support for vulnerable sectors to deal with the aftermath of a health crisis. However, the most significant stimulus to the economy undisputedly remains to step up vaccination for all age groups across the country. Currently, only 2 per cent of the population is fully vaccinated. In the end, an unprecedented crisis needs an unprecedented policy response. This is no less than a war, and India needs to fight this together to save the world’s largest democracy from the wrath of the deadly virus.

The World Bank also has approved a $ 500 million programme to support MSMEs in India to increase liquidity access for viable small businesses impacted by Covid-19. This programme aims to help the government’s nationwide initiative to revitalise the MSME sector which has been heavily affected by the Covid-19 crisis.

On the indirect tax collections front, the gross Goods and Services Tax (GST) revenue collected for the month of May 2021 stood at Rs 1,02,709 crore, of which CGST was Rs 17,592 crore, SGST was Rs 22,653 crore, IGST was Rs 53,199 crore including Rs 26,002 crore collected on import of goods, and cess was Rs 9,265 crore including Rs 868 crore collected on import of goods. The revenues for the month of May 2021 were 65% higher than the GST revenues in the same month last year. This would be the eighth month in a row that GST revenues have crossed Rs 1 lakh crore.

BULLISH ON INDIA

Global investors are betting that the worst of India’s catastrophic second coronavirus wave has passed, helping to push the country’s stocks to record highs. In the week ended on Friday, June 11, the Sensex rose 374.71 points or 0.72% to settle at 52,474.76. The Nifty 50 index gained 129.10 points or 0.82% to settle at 15,799.35. Both the indices attained record closing high levels on June 11, 2021. Some Indian companies have thrived during the pandemic, in part thanks to cost cuts, including lay-offs. Profit margins as of the end of 2020 were at an eight-year high. The pie may have shrunk, but profitability allocation has shifted very sharply to top-end businesses, which is reflected in the market indices.

Indeed, Indian companies’ first-quarter earnings did not reflect the worst of the latest wave, which picked up in April. However, investors suspect any earnings hit will be brief. Hence, there could be a little bit of a reality check for the markets. Stocks that grow constantly differ from those that reach their all-time highs, even though they may seem similar. In the latter case, fundamental data significantly prevails over the technical one. The critical difference lies in the timeframe of their price dynamics. Pay attention to the company’s financials and the absence of sharp increases and decreases in price, since it could help you determine whether or not the business is financially stable.

(Dr VVLN Sastry is a post doctorate in Economics and a PhD in Law & Public Policy. He is a passionate economist, financial analyst and law expert.)