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India's Economy Faces Dual Risks Of Epidemic And Inflation

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In the fourth quarter of last year, with the gradual lifting of the new crown epidemic prevention and control measures, and the traditional holiday consumption season that began in October, India's personal consumption ushered in retaliatory growth. Both personal consumption and government public expenditure in India increased significantly during the quarter, which has become a key factor in promoting the recovery of India's economic growth. India’s economy grew by 0.4% year-on-year in the fourth quarter of 2020, ending the previous two consecutive quarters of negative growth.

   The momentum of India’s economic recovery continued into the first quarter of this year. Data show that the economy grew by 1.6% year-on-year in the first quarter. Finance Minister Sitharaman said at the time that the Indian economy has successfully achieved a V-shaped recovery.

   But the second wave of the epidemic has put a question mark on the prospects for India’s economic recovery. In April, India’s daily increase in the number of confirmed cases of new crowns hit a record high. In order to prevent and control the epidemic, some major economic towns in India have implemented blockade measures, which have adversely affected economic activities. Economic data for the second quarter of this year will be released at the end of August. Some analysts believe that the momentum of India's economic recovery in the second quarter may slow down.

   On the 20th, the Asian Development Bank lowered India’s economic growth forecast for the current fiscal year (April 2021 to March 2022) from the 11% forecast in April to 10%. ADB said that this reduction reflects the widespread impact of the second wave of the epidemic on the Indian economy. Many Indian states implemented strict blockade measures in April and May, which affected the development of economic activities.

   Experts believe that in the short term, the main factors affecting India’s economic recovery include inflationary pressures and a possible third wave of epidemics.

  Related research predicts that if effective response measures are not taken, India may have a third wave of outbreaks. This will make people's consumption activities tend to be conservative. If there is a third wave of epidemics, India's economic recovery will face a negative impact.

  Data show that, driven by rising food and fuel costs, India’s inflation level in May and June exceeded 6% on average, which was higher than the 6% inflation ceiling set by the central bank for two consecutive months. The central bank expects that the price level will remain high in the next few months.

   Some analysts believe that the rising prices of necessities such as milk and gas in India will put more pressure on consumers who have already been hit by the epidemic, and the Bank of India is more likely to raise interest rates in the next few quarters.

   In addition, the public has lingering fears about the epidemic, which has led to weak demand. In the case of sluggish demand, India's rapid economic recovery lacks strong support and motivation, and it still faces many challenges in the future.

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