Thursday, Dec 08, 2022

Impact of second wave of Covid-19 on economy not as severe as first, says RBI

Although still extremely tentative, the overall assessment is that the loss of momentum is not as severe as it was at this time a year ago, the central bank said in its ‘State of the Economy’ report.

In New Delhi, during the second wave of Covid-19 (Express Photo: Tashi Tobgyal)

The Reserve Bank of India (RBI) on Monday said the resurgence of Covid has dented but not debilitated economic activity in the first half of the first quarter of 2021-22.

Although still extremely tentative, the overall assessment is that the loss of momentum is not as severe as it was at this time a year ago, the central bank said in its ‘State of the Economy’ report.

“The impact of the second wave on the real economy seems to be limited so far in comparison with the first wave,” the RBI said. Evidently, the localised nature of lockdowns, better adaptation of people to work-from-home protocols, online delivery models, e-commerce and digital payments, were at work, the report said.

The RBI said real economy indicators moderated in April and May 2021, as many states imposed restrictions to arrest the renewed surge in infections.

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“The second wave has intensified in metros/cities, and relative to the first wave, it has spread rapidly across states, regions, and into rural pockets. Google mobility indicators exhibited a dip across all major cities in April and May as compared to the baseline,” it said. The Apple mobility index also corroborated this declining mobility across cities.

“Real economy indicators moderated through April-May 2021.The biggest toll of the second wave is in terms of a demand shock — loss of mobility, discretionary spending and employment, besides inventory accumulation — while the aggregate supply is less impacted,” the RBI said. On May 5, the RBI had unveiled a set of measures as part of a financial safety net for the economy.

On the global front, the RBI said, a strong bounceback in the US economy appears to be underway, notching an annualised growth rate of 6.4 per cent in Q1:2021 on the back of stimulus, vaccinations and easing of lockdowns.


The British economy has emerged out of lockdown from the onset of Q2:2021. New surges of the virus have pushed the Eurozone into a double-dip recession, with widely differentiated growth profiles among members, it said.

According to the RBI report, the impact of the new infections appears to be U-shaped. “Each shoulder of the U represents sectors that are weathering the storm — agriculture at one end and IT on the other. On the slopes of the U are organised and automated manufacturing on one side and on the other, services that can be delivered remotely and do not require producers and consumers to move,” it said, adding, “these activities continue to function under pandemic protocols.”

In the well of the U are the most vulnerable — blue collar groups who have to risk exposure for a living and for rest of society to survive, doctors and healthcare workers, law and order and municipal personnel, individuals eking out daily livelihood, small businesses, organised and unorganised — and they will warrant priority in policy interventions.


“It is in this direction that the Reserve Bank, re-armed and re-loaded, has stepped out. This is the beginning. There is more work to be done,” it said.

The RBI said the effective reproduction number (R count), a key indicator of how fast Covid-19 infects people, is beginning to drop in India, according to a data modelling assessment by the University of Michigan.

From a R count of 1.61 on April 1, the national metric stood at 0.99 on May 15, the lowest since mid-February, indicating a slowdown in the spread rate of the virus. On May 16, the seven-day average of daily new cases declined for the eighth consecutive day, indicating that India might be approaching the peak of the second wave.

Lockdowns have worked in controlling transmissibility, the RBI said. “Localised lockdowns rather than nationwide lockdowns have been preferred in order to balance the spread of infections versus the loss of economic activity, but the jury is out on which works and where. The key lesson from the visitation of the second wave is vaccinate, vaccinate, vaccinate,” the RBI report said.

“The road ahead is fraught with danger, but India’s destiny lies not in the second wave, but in life beyond it,” it said.

First published on: 18-05-2021 at 03:45:29 am
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