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CEA sees V-shaped recovery if Covid-19 is contained

India’s top economic adviser 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,” Krishnamurthy Subramanian, the chief economic adviser to the finance minister, said in an interview with Haslinda Amin at the Bloomberg Invest Global virtual conference. “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.

India’s manufacturing and services activity took a heavy knock in the quarter started April owing to a nationwide lockdown to stem the coronavirus 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%-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 extended lockdown, cratering production, still-rising Covid-19 cases, inadequate fiscal policy support and limited space for further conventional monetary easing mean the recession will be more pronounced than anticipated and a V-shaped recovery out of reach, ” said Abhishek Gupta, India economist.

India’s government unveiled a 21 trillion-rupee ($276 billion) package to support the economy, including easing access to credit for small businesses and offering cheap loans to workers and farmers.

“Because of the measures we have taken on productivity, we do anticipate growth to be back actually to the high level of 7% and 8% for sure,” Subramanian said.

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