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Home / India News / Economy recovering, rise in cases a risk: Report

Economy recovering, rise in cases a risk: Report

The report, prepared by the department of economic affairs, is based on economic indicators until June.

india Updated: Aug 05, 2020 02:38 IST
Rajeev Jayswal and Roshan Kishore
Rajeev Jayswal and Roshan Kishore
Hindustan Times, New Delhi
High-frequency indicators for July,  such as the Purchasing Managers’ Index for manufacturing and the Nomura India Business Resumption Index (NIBRI), suggest that the nascent economic recovery has been interrupted -- a likelihood acknowledged by the report.
High-frequency indicators for July, such as the Purchasing Managers’ Index for manufacturing and the Nomura India Business Resumption Index (NIBRI), suggest that the nascent economic recovery has been interrupted -- a likelihood acknowledged by the report.(Bloomberg)

India is on the path of economic recovery, but an increase in the number of Covid-19 infections and intermittent lockdowns imposed to curb the spread of the viral disease cloud its prospects, the finance ministry said in a report released on Tuesday.

To be sure, the report, prepared by the department of economic affairs, is based on economic indicators until June. High-frequency indicators for July, such as the Purchasing Managers’ Index for manufacturing and the Nomura India Business Resumption Index (NIBRI), suggest that the nascent economic recovery has been interrupted -- a likelihood acknowledged by the report.

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“With India unlocking, the worst seems to be over for the economy as high-frequency indicators recovered in June from unprecedented troughs in April; however, risks on account of rising Covid-19 cases and intermittent state lockdowns remain,” it said.

India is expected to report its April-June GDP numbers by the end of this month. Economists expect its economy to contract by at least 5% this year (2020-21).

The recovery until June was supported by proactive government and central bank policies, the report said. The government has unveiled a Rs. 20 lakh crore economic stimulus and relief package to cushion the impact of the coronavirus disease pandemic, and the Reserve Bank of India (RBI) has reduced its key interest rate by 115 basis points (one basis point is one-hundredth of a percentage point) since March.

How the Covid-19 infection curve evolves across the states of India will determine whether the recovery is sustainable, the report said, pointing to the emergence of new disease hotspots that has necessitated intermittent lockdowns. The 12 states that drive much of India’s economic growth account for 85% of the Covid-19 case load, with 40% of confirmed cases concentrated in the top two i.e. Maharashtra and Tamil Nadu, it added.

The report also highlighted the impact of Covid-19 on crucial industrial pockets. It said the June year-on-year increase in E-Way bills, or Electronic Way bills, which are required for movement of goods by Goods and Services Tax (GST)-registered entities, was weak in Covid-19 hotspots such as Maharashtra, Tamil Nadu, Delhi and Haryana.

The report warned of a second wave of the Covid-19 pandemic and said urban India will continue to fight the pandemic that will impact both public health and the economy.

“At this juncture, the economic and health risk posed by rising cases of Covid-19 in India calls for further prompt policy measures and continuous facilitation by the government and RBI to support businesses and the economy,” said DK Aggarwal, president of the PHD Chamber of Commerce & Industry.

Exhaustion of pent-up demand created by strict lockdowns in April and May may have led to the weak July indicators, HT reported on Tuesday. The IHS Markit India Purchasing Managers’ Index for manufacturing fell to 46 in July from 47.2 in June. A PMI value below 50 signals a contraction. GST collections fell to Rs.87,422 crore in July from Rs. 90,917 crore in June. The weekly Nomura India Business Resumption Index was flat between the week ended July 26 and August 2. A Reuters poll of economists suggested that the economy could contract by 20% in the June quarter and remain in negative territory until the December quarter.

“The removal of the strict lockdown restrictions in the cities has slowed the contraction of the economy, but it will be a while before overall growth can return, which will entirely depend on the containment of the viral spread,” said Anupam Manur, assistant professor at the think tank Takshashila Institution, said.

The agriculture sector, which contributes about 15% of the total gross value added, is the silver lining for the economy in 2020-21 with the forecast of a normal monsoon. “A record procurement of wheat has enabled a flow of around Rs 75,000 crore to the farmers which will boost private consumption in rural areas,”the finance ministry report said. It also pointed to the government’s recent moves to deregulate and liberalise agricultural markets.

,“With lower density of population and relatively stable disposable income levels, rural India will be the source of growth until the pandemic recedes,” said Manur.

“Agriculture was saved as it bypassed the brunt of the lockdown,” added DK Srivastava, chief policy advisor at consulting firm EY India. “ A better-than-normal monsoon and continuously improving terms of trade in favour of agriculture supported rural demand.”

He said that positive impact of agriculture would be supplemented by public and defence services. The public and defence services sector in fact grows faster than even agriculture in a normal year. In 2020-21, its growth is likely to be much higher than normal because of heavy expenditure on health and defence.

Srivastava predicted that agriculture could grow by about 5% and public and defence services expand by nearly 15% in 2020-21. “Much will also depend on further policy stimulus, both fiscal and monetary, during the remaining part of the financial year, and the speed with which an effective Covid-19 vaccine becomes available and is introduced in India,” he said.

The finance ministry report said $11 trillion of fiscal and monetary stimulus measures unveiled by global economies appear to have arrested a free fall in global output and crude oil markets are re-balancing after an unprecedented fall in prices in March and early April.

“However, downside risks to global recovery stem from an over-leverage in the non-financial sector including external debt financing risks, simmering trade and geo-political tensions, and unprecedented Covid-19 induced unemployment losses, amid fears of second major wave of infections,” it said.

According to th World Bank, the global economy is expected to shrink by 3.2% this year.

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