How is the economy faring in April-May 2021, compared to April-May 2020?

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While the limitation significantly subsided in the second half of 2020, 2021 had seen the return of lockdown. Data from the Google Mobility Index shows that workplace mobility on May 20, this year, it was significantly lower than what on May 20 2020

Representational image
Representational image

On March 24, 2020, Prime Minister Narendra Modi announced the imposition of a national lock in India to prevent a surge in Covid-19 infection. May 24 marks 14 months of imposition in India.

For 68 days since March 25, 2020 and so on, India is in almost complete locking. While the limitation significantly subsided in the second half of 2020, 2021 had seen the return of lockdown. Data from the Google Mobility Index shows that workplace mobility on May 20, this year, it was significantly lower than what on May 20 2020.

Lockdown 2020 caused a contraction of 24% in GDP in the quarter ended June 30 2020. GDP number for the quarter ended June 30 this year will only be released in August. Most economists do not expect this quarter GDP figure as bad as last year. After saying that, there are at least three reasons why the economic situation has now changed gloomy.

Economic heirs from cheap crude oil prices are over

When a pandemic erupted in 2020, mobility and economic activities fell sharply throughout the world. It has the same effect on petroleum consumption and, therefore, prices, which fall sharply. The price of an average crude oil basket fell to $ 44.82 a barrel at 2020-21, the lowest since 2004-05.

More than 80% of Indian petroleum requirements are sourced through imports. So, cheaper oils bring many potential benefits for India. This includes higher GDP through a profitable trade balance, lower inflation and higher government income if the benefits of lower crude oil prices are not fully forwarded to consumers. Strengthening the gallow revenue from petroleum products plays an important role in supporting FISC at 2020-21, a year when normal sources of mobilization of income collapsed.

Oil prices have recovered in recent months. Data from the US energy information system shows that they are not expected to go down in the near future. This means that the tailwinds dissipation is there to support the economy in 2020. To place it on the contrary, the government must store fuel prices at the current record now or sacrifice most of its income. With GDP at 2021-22 it is possible lower than expected, this is not an easy choice to make.

There is no further increase in decomposed fortune from the capital market in 2021

Indian benchmark stock market index, BSE Sensex, fainted up to 25981.24 points on March 23, 2020. This is the lowest value since December 26, 2016. The index closed at 50,651.90 on May 24, 2021. This means that, on average, a rupee Investing in the stock market on March 23, 2020, almost doubled itself in about 14 months in India. This is likely to produce a massive increase in capital for those who make such investments.

Unlike when the pandemic first erupted, the stock market had been very resilient in India during the second wave. To be sure, P-e Multiple – who tell us the relationship between stock prices and income per share – for BSE Sensex has fallen slightly comparing the peak level-2020. LED profit recovery has played an important role in this matter. However, BSE P-e Multiple continues to be relatively higher than the main stock market globally. Then there is medium-term risk on the stock market that corrects and when interest rates rise in developed countries. All this means that there are not many possible increases in large-scale capital from the capital market; In fact, there is a risk of large negative wealth effects if there is a significant and prolonged correction.

Will India switch from high risk strategies to risk in opening its economy?

One of the biggest reasons for large-scale panic during the first wave of Covid-19 is that there is little knowledge about this disease. No one knows whether the vaccine will be available or vaccine. There is a little clarity about how long the Kuncian will survive and will there be more than one wave of pandemic?

Now there is a greater clarity about this. Vaccines are available but not in the amount needed in India. Ensure the latter can take time. Indian excitement – both the state and the private sector is guilty of this number, but the first has a greater error – in believing that it will not face the second wave of infection has proven wrong place. Indian business assumption index India (NIBRI), the size of business activity compared to the pre-pandemic base, down to 60 in the week ended May 23, only three percentage points higher than what was held on Sunday 24 May, 2020. reached 99, 3 at the end of February.

This experience is likely to play an important role in shaping expectations of the probability of the third wave of infection and restrictions regarding economic activities. Sajjid Chinoy, chief economist at JP Morgan has underlined this fact in an essay published in business standards, on the grounds that “sudden and cruel from the second wave can cause behavioral scars for the coming months to reach a lot of vaccination.” This scar, Chinoy argues, can manifest itself in policy makers to become more conservative on restrictions, income uncertainty and increased caution for households and private investments that take the time to recover, regardless of significant easing of monetary conditions.

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