CEA Subramanian says V-shaped recovery possible if Covid-19 contained

Chief Economic Advisor Krishnamurthy Subramanian, said a V-shaped recovery for the economy is possible this year, provided a vaccine is found to contain the Covid-19 pandemic.

“The recovery will happen after that uncertainty from the health side is taken care of,” Subramanian said in an interview with Bloomberg. “If it so happens that in the latter half of the year we have the vaccine, then one can anticipate V-shape recovery starting in the second half.”

In the absence of a vaccine, the economic recovery will have to wait until next year, although that too is likely to be V-shaped given the experience after the Spanish flu of 1918, he said.

With a coronavirus vaccine still months or may be even years away, economists outside the government don’t see a sustained recovery anytime soon. “We expect the economy to recover in the next fiscal year to 8.5 per cent, which is largely due to base effect,” Dharmakirti Joshi, chief economist at CRISIL, said. “Vaccine is not coming this year. Our assumption is it will only be available in mid of 2021.”

India’s manufacturing and services activity took a heavy knock in the quarter started April owing to a lockdown to stem the Covid-19 pandemic. That’s put Asia’s third-largest economy on course for its first annual contraction in more than four decades this year, with some economists seeing a return to 8 per cent-plus growth rates taking as long as a decade.

But Subramanian is confident that support measures unveiled by the government, in addition to a low-base effect, will help lift economic growth next year. The Centre has unveiled a Rs 21-trillion package to support the economy, including easing access to credit for small businesses and offering cheap loans to workers and farmers.