Recently, the latest readings of the Nomura India Normalization Index (NINI) suggested the impact of Covid-19 on Indian Economy and the K-Shaped Recovery through which the Indian Economy is recovering.

  • Nomura Services India Private Limited (Nomura Holdings Inc) is a consumer services company.

Key Points

  • Effect of Covid-19 on Households:
    • Households at the top of the pyramid are likely to have seen their incomes largely protected, and savings rates forced up during the lockdown, increasing ‘fuel in the tank’ to drive future consumption.
    • Households at the bottom are likely to have witnessed permanent hits to jobs and incomes.
  • Effect of the Current Monetary Policy:
    • A long lasting period of ultra-accommodative monetary policy has led to a fall in real lending rates and spreads for corporates and households that should eventually come as lagged relief to the interest-sensitive sectors.
    • An economic spread is a measure of a company’s ability to make money on its capital investments.
  • Impact of Vaccination:
    • Lagging sectors such as travel, tourism and hospitality will finally emerge out of the effect of Covid-19.
  • Economic Recovery after Covid-19:
    • As the fiscal deficit in FY 2020-21 has widened to roughly 7% of GDP, which is double the pre-pandemic target of 3.5 % of GDP. The government may, therefore, feel encouraged to rely on higher fuel taxes, disinvestment, and sin taxes to bolster coffers.
    • India is going through a K-shaped recovery, wherein corporates and households with stronger balance sheets have recovered more robustly, while smaller firms and poorer households probably remain trapped in a vicious cycle of poverty and indebtedness instigated by the pandemic.

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