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Vaccination drive can contain economic damage caused by local lockdowns: EY

Lockdown impact on GDP

The maximum impact of the Covid 19 induced lockdown in several parts of the country would be felt in the first quarter of the current financial year. However, if vaccination gathers pace even June onwards, the damage to the economy in the second and subsequent quarters can be contained, EY said in its “Economy Watch” report.

EY also said noted that since there is a direct trade-off between the duration and coverage of the lockdowns on one hand and the erosion of growth on the other, India needs to come out with policy measures to protect growth of at least 8.7 per cent — to ensure India’s FY22 real GDP reaches the same level of FY 20—just before the Covid 19 pandemic hit India and the world.

“The more extensive the lockdowns, the larger would be the loss in GDP growth,” the report said. While the infection has also spread in the rural areas, “agricultural growth would remain broadly intact.”

The worst affected sectors remain the same as last year –construction, trade, transport, hospitality, followed by manufacturing and mining, the report said.

The aim should be to protect growth in FY22 at the same level of FY20– that is, Rs 145.7 lakh crore.

“Suitable policy intervention in 1QFY22 can ensure that this sector does not contract. This would require frontloading of government’s budgeted FY22 expenditures particularly the capital expenditures,” the report said.