Worst seems to be over, farm sector to cushion COVID-19 impact on economy: FinMin report

The economy was past the worst of the pandemic as leading indicators showed a recovery in June compared to the trough in April, however, the rising number of daily cases and intermittent lockdowns have made recovery prospects fragile, according to a government report.

“With India unlocking, the worst seems to be over as high-frequency indicators show an improvement from the unprecedented trough the economy had hit in April 2020,” said the finance ministry’s monthly economic report for July.

“However, the increase in the COVID cases and subsequent intermittent lockdowns make the recovery prospects fragile and call for constant and dynamic monitoring,” it added.

The report cited a host of high-frequency indicators it was tracking to show improvements till July. These included the Index of Industrial Production (IIP), Purchasing Managers Index (PMI), power generation, production of steel and cement, railway freight, traffic at major ports, air cargo and passenger traffic, e-way bill generation, consumption of petroleum products and motor vehicle registration among others.

Emphasising the need to bring the infection rate under control, the report said, “The future economic recovery of India is crucially linked to how the COVID-19 infection curve evolves across states of India,” it said adding, “India’s top 12 growth driving states account for 85 per cent of the COVID-19 case load, with 40 per cent of confirmed cases concentrated in the top two growth drivers i.e. Maharashtra and Tamil Nadu.”

Agriculture
Highlighting the positive developments in the agriculture sector and the high expectations the government had from it, the report said the sector would cushion the economy from the pandemic shock this fiscal.

In a chapter titled “Agriculture Sector – The Silver Lining in the Year 2020-21”, the report said the sector would contribute positively to overall gross value added to the extent of 0.5-1 percentage points.

Credit growth
It also noted that despite efforts from the Reserve Bank of India and the government, credit growth remained sluggish. “Bank credit growth recorded a 0.4 per cent increase in the fortnight ending 3rd July, 2020 compared to the previous fortnight. However, on a YoY basis, the growth rate remained at 6.1 per cent, half of last year levels,” it said.

In terms of non-food credit, the greatest fall in outstanding credit in May was recorded in the services sector, which accounted for 44% of the total decline for the month, the report said. This was followed by industry, which saw credit decline by Rs 27,700 crore in May, followed by personal loans and agriculture and allied activities.