India can see a proper recovery next year on the back of positivity and confidence due to Covid-19 vaccines, Union finance minister Nirmala Sitharaman said on Friday, arguing that steady growth and capacity expansion in the past two months had pulled the economy out of its pandemic trough.
Speaking at the 18th Hindustan Times Leadership Summit, Sitharaman also defended the Centre’s controversial farm reform laws, said she is not worried about food inflation and hailed the spirit of cooperation that steers the running of the GST Council.
The finance minister’s comments came days after UK became the first country in the world to approve a vaccine made by Pfizer-BioNTech, with the United States and European Union expected to grant regulatory clearances later this month to stave off a disease that has killed 1.5 million worldwide.
So far, four vaccine candidates – including one that is being manufactured in India — have declared encouraging late-stage trial results. Hours before the summit, Prime Minister Narendra Modi announced that India is set to get a vaccine within weeks.
“The vaccine coming brings in a certain positivity. A vaccine efficiently delivered…will only bring in confidence among the people, both the workers, employers and also people who are engaged in some or the other economic activity,” Sitharaman said at the 18th Hindustan Times Leadership Summit.
“The vaccine will bring in optimism and positivity. With the vaccine, economic activity will get traction.”
With 2020-21 being seen as when large numbers of Indians will get inoculated, with frontline workers and vulnerable populations prioritised, the finance minister also pointed towards the importance of logistics and distribution networks. She refused to specify how much money would be set aside for Covid-19 immunisation in next year’s Union budget.
“We don’t know what will be the details which come with the vaccine. Will it be one dose or two doses? Will it be two doses with two or three weeks in between? Will two doses be sufficient? Unless we get all these details, I really cannot work towards a number.”
At the HT Summit two weeks ago, Serum Institute of India CEO Adar Poonawalla had said that the Oxford-AstraZeneca vaccine which is being manufactured in India — could become available for the general public by April-May next year and is likely to cost around Rs 500-600 for a dose.
Sitharaman acknowledged that the current situation in the country was drastically different from when she presented the budget in February but added that the government had steered the country through the pandemic with a judicious mixture of fiscal and monetary measures.
The finance minister also touched upon the recovery in the second quarter of 2020-21, when the economy shrank by 7.5, outperforming most expectations and registering is a sharp improvement from the 23.9% contraction in the previous quarter.
Sitharaman attributed this showing to an expansion in the core sectors and said that just pent-up demand and the festive season could not have driven this recovery alone. She also pointed to revenue from the Goods and Services Tax (GST) exceeding Rs 1 lakh crore for the second consecutive month in November, as a clear indication that economic activity was returning to normal.
“Recovery is consistently happening in the last two months…you hear core sector industries, cement, iron and steel, integrated plants are all going in for expansion, not just in one unit but across the country, you’re hearing of expansion,” she said.
“There is an indication that additional demand coming in. It is not pent up or festival demand. It is likely to sustain.”
Sitharaman contested the assumption that private sector investment continued to be weak, and said core sector expansion couldn’t happen without additional private buy in.
“Banks are also seeing industry approach for additional expansion-related funding requests. You are seeing expansion in capacities and it cannot be without private investment,” she said, adding that one may have to wait for a month to see if credit is also equally expanding.
When asked about inflation – hours after the Reserve Bank of India held rates, indicating inflationary anxieties – Sitharaman said she was not worried by what she termed as seasonal fluctuations.
“There are seasonal ups and downs in prices and the commodities about which we are seeing clear hike in prices are largely seasonal. If you take foodgrains and edible commodities, there are seasonal fluctuations. The government, through inter-ministerial group, has been very frequently looking at changes and taking conscious calls to fill in any supply level shortages through imports and logistical constraints are getting sorted.”
“This blip in inflation, particularly of food items, will ease out.” Hours before, RBI governor Shaktikanta Das said retail inflation is likely to remain elevated and pegged it at 6.8% for the third quarter.
Sitharaman defended the government’s relief measures for the middle class, and said 300 million people received cash transfers during the pandemic lockdown period but acknowledged that the fiscal deficit will certainly be higher than the 3.5% of GDP target set in the 2020 Union budget.
“What has given me most strength is that people of India, given the challenges and difficulties, have still kept going and today, that’s the reason for the revival… It’s the virus and related matters were more of a worry than the economy,” she added.