Two years after Covid, Indian economy hopping from one crisis to another

When the coronavirus pandemic hit Indian shores in early 2020, the Indian economy was already in a downward spiral, with growth rate slumping to an 11-year low of 3.1 per cent in the March quarter of FY20. The rapidly surging Covid-19 cases forced the government to impose a nationwide lockdown which resulted in India’s first recession in FY21 (at -6.6 per cent) after a gap of 40 years.
 

While the economy was mending its way up, the second wave beginning March 2021 led to loss of many more lives and further deceleration of growth momentum. However, high-frequency data indicates that the Indian economy came out of the Omicron wave in January with little damage, in stark contrast with the two previous coronavirus waves. The PMI indices for manufacturing and services sectors showed only a slowdown in activity in January, well short of an outright decline as in previous occasions.
 

During the first wave, mobility restrictions and supply shortages led to a surge in retail inflation. However, with global economic recovery and hardening commodity prices, both wholesale and retail inflation have remained elevated, putting pressure on the Reserve Bank of India (RBI) to change its accommodative stance to boost growth.