India will be among only a few economies in the world to rebound strongly from COVID-19 induced economic contraction of 2020-21, a Finance Ministry report said assuaging that the Omicron variant's impact on the economy will be less severe due to rapid vaccination.
Real GDP in Q2 of FY2021-22 has grown by 8.4 per cent YoY, recovering more than 100 per cent of the pre-pandemic output in the corresponding quarter of FY2019-20, said the monthly Economic Review prepared by the Finance Ministry.
"India is among the few countries that have recorded four consecutive quarters of growth amid Covid-19 (Q3, Q4 of FY21 and Q1, Q2 of FY22) reflecting the resilience of the Indian economy. The recovery was driven by a revival in services, full-recovery in manufacturing and sustained growth in agriculture sectors," it said.
The recovery suggests kick-starting of the investment cycle, supported by surging vaccination coverage and efficient economic management activating the macro and micro drivers of growth, the report said.
India's economic recovery is expected to gain further strength in the remaining quarters of the financial year, as evident from 19 among 22 High Frequency Indicators (HFIs) in September, October and November of 2021 crossing their pre-pandemic levels in the corresponding months of 2019, it said.
"Yet, Omicron, a new variant of COVID-19 may pose a fresh risk to the ongoing global recovery. However, preliminary evidence suggests that the Omicron variant is expected to be less severe and more so with increasing pace of vaccination in India," the Finance Ministry said.
Observing that the COVID-19 pandemic has led to considerable human and economic costs setting countries back on their developmental goals, the latest review said, the year 2021 is thus a "catch-up" year for the global economy including India, trying to recover the pre-pandemic output level of 2019.
India has not only caught up with its pre-pandemic output of Q2, but is also expected to do so for the full year, it said, adding, the Monetary Policy Committee (MPC) in its December statement has maintained the growth forecast of 9.5 per cent during FY 2021-22, implying a full recovery and a 1.6 per cent growth over pre-pandemic GDP level of FY 2019-20.
"India will be among only a few economies in the world to rebound strongly from COVID-19 induced economic contraction of 2020-21," it said.
Noting that the agriculture sector has been the foundation on which economic contraction in India was minimised in FY2020-21 and recovery sped up in FY2021-22, the report said rising production of food grains, increase in MSPs for both kharif and rabi crops in 2021-22 have also raised rural incomes.
The central government finances improved during April 2021 to October 2021 over the corresponding period of previous year, with both direct and indirect taxes showing a significant YoY growth, it said, adding that sustained improvement in revenue collection bodes well for achieving the government's fiscal deficit target at 6.8 per cent of GDP for the current financial year.
In the first seven months of FY2021-22, it said the government stepped up public capital expenditure in infrastructure by 28.3 per cent over the corresponding period of last year with focus on railways, road transport and highways, and housing and urban affairs.
Revenue expenditure during this period saw a much lower YoY growth of 7.5 per cent, indicating a pronounced shift towards much improved quality of total expenditure, it added.