New Delhi: Households have lost a whopping Rs 13 lakh crore of their incomes from the pandemic-induced job losses, according to a report that also warns of the economy losing momentum by mid-2021 on a likely slowdown in consumption demand that has propped the economy in recent months.
Describing the growth momentum seen in second and third quarters of FY21 as a positive surprise, economists at UBS Securities India led by Tanvee Gupta Jain said the economy could slow by mid-2021 as households that lost incomes during the pandemic to the tune of Rs 13 lakh crore could drag consumption with a lag.
In the Q2 of the current financial year, GDP contraction narrowed to 7.5 percent; while in Q3, it grew 40 basis points (bps) as compared with a 23.9 percent contraction in the first quarter.
Given this, sustainability of the recovery seen in the second and third quarters and also the growth outlook are dependent on the revival in new investment intentions and easing of financial sector stress.
The report, based on a one-day virtual macro tour that the brokerage had with experts, attributes the strong growth rebound seen so far to pent-up consumption, and a surge in investment activity, primarily investment projects committed before the pandemic but getting completed now.
Though general economic activity is back to the pre-pandemic level, the key question is if this growth momentum can be sustained as the composite economic indicator has plateaued in January after recovering swiftly in the prior two quarters.
Therefore, the prognosis for the March quarter appears to be softening of the momentum, according to the report. But, the counter-cyclical fiscal policy in the Budget focuses on higher capex (2.5 pc of GDP, the highest since FY08 and up from 1.7 pc in the previous year), will help boost the nascent economic recovery.
