If the rising case load of Coronavirus in India, at over 8.5 million, is worrying, consider the hit the economy has taken in the first half of the current fiscal year. Estimated at over ₹15 lakh crore, the setback adds up to more than double the annual output of Sri Lanka.

To make up this loss already incurred is not going to be easy. As an Indian corporate leader put it: “It is simple math. If the economy was at 100 and is down to 75, it will take a while before it can get back to 100. And as things stand, we have clearly lost at least two years of growth.”

Former Reserve Bank of India governor C. Rangarajan, who has also served as chairman of the Prime Minister’s Economic Advisory Council, however, has some comforting words, though he admits he does not see any easy or early solution. “It will only be in 2021-22 that India can think of regaining the lost ground of over ₹15 lakh crore,” Rangarajan tells Fortune India.

The number is arrived at on the back of a large envelope—the ₹200 lakh crore GDP of India, divided equally into four quarters, with the first quarter taking a 24% hit or between ₹11-12 lakh crore, and the second quarter another 12% or around ₹6 lakh crore, totalling more than ₹15 lakh crore.

For businesses trying to retool themselves as they learn to cope with a slump in consumer spending triggered by the labour-market implosion, Rangarajan feels it is still too early to expect the economy to compensate for the lost output.

Image : Graphic by Rahul Sharma

Those within the government have, however, started talking about a rebound in the economy. India’s chief economic adviser, Krishnamurthy Subramanian, tells Fortune India, “The manufacturing sector, on the back of many of the reforms that have been launched by the government, is recovering very well. The manufacturing PMI (Purchasing Managers Index) in the month of September itself is at a seven-year high and keeping up the momentum even in October. Then, the pick-up in GST (Goods and Services Tax) revenues crossing the ₹1-lakh-crore-mark, and the rise in automobile sales, steel, and power consumption are all pretty good indicators.” Subramanian says it is a V-shaped recovery with manufacturing pacing ahead of services.

Agrees Rangarajan, saying that these numbers, to him, “do indicate a pick-up in the economy but then they are a reflection of the relaxation of the lockdown-led restrictions”.

He says it may still be too early to assume that the recovery is a result of the monetary and fiscal policy measures. “The government can actually take credit for whatever happens in the second half of the year. Some of the fiscal and monetary actions taken earlier may start to take effect immediately as there is no element of time lag now,” he said.

Subramanian, however, does not give any framework or revised numbers on revenue and fiscal deficits. “If the turnaround continues to be good then we should be able to recover pretty soon,” he emphasises. “I continue to be cautiously optimistic if we do not have increases in Covid-19 cases, which is the only downside risk.”

Shamika Ravi, director-research at Brookings India and a former member of the PM’s Economic Advisory Council, feels it is not enough to look at the macro numbers alone. “There are regions like the North East where the viral caseload has been relatively low but the economic impact severe. The role of the government, therefore, is to lower uncertainty because uncertainty lowers both consumption and investment and triggers the lower pick-up that comes with it.” Ravi adds: “By lower uncertainty I mean putting out a credible economic strategy with a timeline and budget.”

The government has talked about its projected ₹111 lakh crore investment for 2020-25 to develop social and economic infrastructure under the National Infrastructure Pipeline (NIP). How this will translate into an integrated set of investment expenditures that have both backward and forward linkages and how soon they take effect will be keenly watched.

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