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    Second wave a downside risk for first quarter, impact to be muted: Finance ministry

    Synopsis

    Businesses have adapted to cope with Covid-19, which has provided some resilience, the finance ministry said in its monthly economic review for April, explaining why the effect on the economy may not be as severe. India’s economy contracted 24.4% in the first quarter of FY21 following a nationwide lockdown to contain the first wave of the virus.

    Impact of Covid-19 second wave on economy to remain muted: Finance ministry
    The second Covid wave poses a downside risk to economic activity in the first quarter of the current fiscal year, the finance ministry said, but it expects the impact to be muted compared with that of the first wave a year earlier.

    Businesses have adapted to cope with Covid-19, which has provided some resilience, the finance ministry said in its monthly economic review for April, explaining why the effect on the economy may not be as severe. India’s economy contracted 24.4% in the first quarter of FY21 following a nationwide lockdown to contain the first wave of the virus.

    Agriculture will continue to be a “silver lining” for the economy, the ministry said.

    It called for faster vaccination, pointing to the global experience that inoculation has been successful in reducing transmission and shielding the economy.
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    Given high positivity rates, most states also need to expand testing, it said.

    “Growing infections and consequent restrictions, though local/ regional in nature, have imparted a downside risk to economic activity,” the report said, pointing to the decline in the Google mobility indicator.

    However, this may not necessarily have an impact as economic activity has accordingly adjusted.

    “The experience from other countries suggests a lower correlation between falling mobility and growth as economic activity has learnt to operate with Covid-19,” the report said.
    The disruption is also not as severe as earlier.

    “The Oxford Stringency Index in India has surged to around 71 in April 2021 from 59 in the preceding month, though it is still below 100 in April 2020 and average of 85 in Q1: FY 2020-21,” the finance ministry said.

    Goods and services tax (GST) collections registered another record high of ₹1.41 lakh crore in April, indicative of continued economic recovery, the report said.

    Most independent institutions have pared India’s growth estimate for the year. Earlier this week, rating agency S&P said its FY22 growth estimate could be pared to 8.2% from its earlier forecast of 11% in a “severe” scenario.

    While the second wave had blunted the momentum of economic recovery, agriculture will continue to be a bright spot with record foodgrain production of 307 million tonnes estimated in the crop year beginning July on the back of a predicted normal monsoon, it said.

    Indicators of rural demand such as tractor sales showed a 172% increase in March from last year and 36% higher than 2019 levels.

    High international commodity prices and logistics costs may push up input price pressures across manufacturing and services, the report said, but the ministry expects lower food prices to provide some relief.

    “Softening food and fuel prices, with normal monsoon and expected supply easing of food products, may provide succour to a potent risk of rise in input prices surfacing as retail inflation,” the report said.


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    ( Originally published on May 07, 2021 )
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