Econ­omy re­cov­er­ing, rise in cases a risk: Re­port

Hindustan Times (Gurugram) - - Htspotligh­t - Ra­jeev Jayswal and Roshan Kishore let­ters@hin­dus­tan­times.com

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.

“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% in 2020-21.

The re­cov­ery un­til June was sup­ported by proac­tive gov­ern­ment and cen­tral bank poli­cies, the re­port said. The gov­ern­ment has un­veiled a ₹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.

Anu­pam Ma­nur, as­sis­tant pro­fes­sor at the think tank Tak­shashila In­sti­tu­tion, said: “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.”

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 ₹75,000 crore to the farm­ers which will boost pri­vate con­sump­tion in ru­ral ar­eas,”the fi­nance min­istry re­port said.

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

DK Sri­vas­tava, chief pol­icy ad­vi­sor at con­sult­ing firm EY In­dia, said: “Agricultur­e was saved as it by­passed the brunt of the lock­down.”

“A bet­ter-than-nor­mal mon­soon and con­tin­u­ously im­prov­ing terms of trade in favour of agricultur­e sup­ported ru­ral de­mand.” He said 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.

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