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Growth will be hit in April quarter but impact will be less than first wave: Finance ministry

Earlier this week, RBI had also put out an optimistic statement saying the impact on economic activity from the Covid second wave will be minimal.

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New Delhi: The second wave of the Covid-19 pandemic poses risks to economic activity but the impact will be “muted” when compared to the first wave, Union Ministry of Finance said in its monthly economic review for April. 

The ministry’s statement comes as India continues to record lakhs of new Covid infections and hundreds of deaths every day. Health ministry data released Friday pegged India’s daily total at a record 4.14 lakh fresh Covid infections and 3,915 deaths.

“In April, due to the second wave in India, the momentum in economic recovery since the first wave has moderated… Learning to ‘operate with Covid-19’, as borne by international experience, provides a silver lining of economic resilience amidst the second wave,” the finance ministry said in the review, released Friday. 

The second Covid wave in India, the review added, is witnessing a much higher caseload with new peaks of daily cases, daily deaths and positivity rates and presents a challenge to ongoing economic recovery. 

“With the second wave of Covid-19 infections forcing localised or state-wide restrictions, there is a downside risk to growth in the first quarter of FY:2021-22. However, there are reasons to expect a muted economic impact as compared to the first wave,” it said. 

“The experience from other countries suggests a lower correlation between falling mobility and growth as economic activity has learnt to operate ‘with Covid’.”

The finance ministry cited resilient rural demand, rebound in manufacturing activity, improvement in indicators like port traffic, rail freight, power consumption, and improved collections from the goods and services tax (GST) to further its argument of sustained improvement in industrial and commercial activity. 

However, the ministry acknowledged that the second wave of the pandemic hit market sentiments. “Nifty 50 and the S&P BSE Sensex recorded losses of 0.4 per cent and 1.5 per cent respectively in April, and Rupee depreciated by 2.3 per cent to reach 74.51 INR/USD in April,” it said.

The government’s optimism is also shared by the Reserve Bank of India, which said earlier this week the dent to aggregate demand is expected to be moderate in comparison to a year ago and the disruption to manufacturing units minimal.  

“We must also stay focused on our future, which appears bright even at this juncture, with India set to emerge as one of the fastest growing economies in the world,” RBI Governor Shaktikanta Das said a few days back.


Also Read: Here’s what more RBI can do to help Indian economy as Covid rages on


Despite optimism, India’s growth forecasts being lowered

The Indian economy, which was expected to contract by 8 per cent in 2020-21, could register positive growth of around 10 per cent this year, mainly on account of a low base effect. 

However, despite the positive base effect, rating agencies and economists have started lowering India’s growth forecast for the current fiscal, with one agency even lowering the forecast from double digits to single digits. S&P Global Ratings slashed India’s growth forecast to 9.8 per cent from its earlier forecast of 11 per cent.  

Similarly, others like Barclays and Goldman Sachs have also lowered their growth forecast for India to 10 per cent and 11.1 per cent, respectively, in the last few days. 

The RBI, which had estimated that the economy will grow at 10.5 per cent this fiscal, has so far not revised its growth forecasts.


Also Read: Good start by RBI. Now, banks need to step up & do their bit to help Covid-hit economy


 

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