Economic recovery fragile due to Covid-19, states' lockdowns: FinMin

A policeman stands guard near a closed market after the authorities imposed weekend lockdown from Friday (6 PM) to Monday (6 AM) due to surge in COVID-19 cases, in Jammu
The finance ministry said on Tuesday that the prospects of India’s economic recovery remained “fragile” because of a surge in Covid-19 cases and frequent lockdowns.

“India is well on the path to a recovery from a trough in April, ably supported by proactive government and central bank policies. However, the increase in Covid-19 cases and subsequent intermittent lockdowns make the recovery prospects fragile and call for constant and dynamic monitoring,” the Department of Economic Affairs said in its economic report for July.

The report said the future economic recovery was crucially linked to how the Covid infection curve evolved across states. “India’s top 12 growth-driving states account for 85 per cent of the Covid-19 case load, with 40 per cent of the confirmed cases concentrated in the top two growth drivers, i.e. Maharashtra and Tamil Nadu,” it said.

As India unlocked, active cases reached 560,000 by July-end, growing at 166 per cent compared to June-end, the report stated. The highest growth in active cases in July was seen in Karnataka, Andhra Pradesh, and Jharkhand. As of Tuesday afternoon, India had the third-highest number of confirmed Covid cases worldwide at 1.85 million. The data by the Ministry of Health and Family Welfare showed that 586,298 of these were active cases, with 38,938 deaths.

The report said the worst seemed to be over as high-frequency indicators showed a recovery in June compared to May and April. These include goods and services tax collection, electricity consumption, rail freight and passenger data, petrol and diesel consumption, and highway toll collection.
The push for growth in the coming months, it said, appeared to be pitched in rural India, and would be helped by the recent reforms announced in the agricultural sector, including the two Ordinances that would help farmers trade across states.

India has witnessed record procurement and production of food grains as rabi crop harvesting gets over and kharif sowing begins. “Urban India and the world at large, however, continue to fight the growing menace of the pandemic, simultaneously on the health and economic front,” the report said.

According to the EcoScope report by Motilal Oswal Financial Services Ltd (MOFSL) released on Tuesday, India’s gross domestic product (GDP) is estimated to have contracted 5 per cent in July from a year ago, after falling 18-20 per cent in the first quarter of 2020-21. MOFSL expects a decline of 2-3 per cent in GDP in the second quarter before showing growth.

Besides, the IHS Markit manufacturing purchasing managers’ index (PMI) fell to 46 in July, down from 47.2 in June as regional lockdowns hit the sector. On the other hand, the yearly SBI Composite Index, which touched its lowest level of 35.9 in June, rose to 46 in July. While the monthly index had reached the lowest level of 24.0 in April, it improved to 40.5 in July. Last month, credit rating agency ICRA had sharply revised its forecast for the contraction in the Indian economy to 9.5 per cent for 2020-21 from its earlier assessment of 5 per cent. It attributed the revision to the rising Covid-19 infections resulting in a spate of localised lockdowns in some states and cities, arresting the nascent recovery that had set in during May-June.

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