The report predicted three scenarios panning out in the future, ranging from optimism to extreme pessimism.
In the first scenario the economy rebounds strongly in FY2022, as several effective vaccines will be out and available. “The regional spurts in infection may also start tapering from June 2021. Total active infection cases begin to come down reasonably by August and there are no further outbreaks. The stimulus and reforms come into play with ripple effects across sectors. We expect the economy to reach pre-crisis levels by Q3 FY2022 (OctDec 2021) and revive at a sustainable pace thereafter,” the report said.
Indian economy contracted in two consecutive quarters between April-June and July-September. Economists are now busy predicting what happens next. Even while the government hopes that the economy may stabilise in the December quarter, many industry trackers say that that could be temporary.
In the second scenario regional infections, especially in urban cities, continue to be high and lockdowns keep getting intensive. A vaccine is not available to the population till the end of 2021, while people remain sceptical of the vaccine effectiveness. The government is limited by its resources, and capital expenditure and infrastructure spend take a hit. Reforms take more time to impact. We expect the economy to reach pre-crisis levels in early FY2023, the report said.
The third scenario is the most pessimistic of the three where the economy suffers several outbreaks and reinfections leading to a second major lockdown in March 2021. “Vaccines largely remain ineffective, besides being unavailable. Government resources are majorly directed towards saving lives and livelihood. India barely reaches pre-COVID-19 levels at the end of our forecast period, which is till FY2023. Figure 8 compares GDP levels under the three scenarios. After a contraction in FY2021, the economy strongly bounces back in FY2022 under Scenario 1 and 2. This is because of the low-base effect in FY2021 and also because Milton Friedman’s plucking theory plays out.iii The theory suggests that recessions are negative events that pull the economy down and after it, the economy bounces back up. The pace of the rebound is proportional to the depth of the recession. Even under Scenario 3, where the economy continues to reel under infection in FY2022, the year manages to grow modestly,” the report added.