Momentum In Economic Recovery Has Moderated: Department Of Economic Affairs

The second wave of coronavirus infections forcing localised or state-wide restrictions poses a downside risk to economic activity in the first quarter of the ongoing financial year, according to the Department Of Economic Affairs.

The momentum in economic recovery since the first wave has moderated in April, it said in a monthly newsletter. “However, there are reasons to expect a muted economic impact as compared to the first wave.”

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 DEA said.

Key Highlights

• Signs of moderation could be seen in power consumption and average daily electronic toll collection, among others. The seven-day moving average of daily e-way bills generated in April 2021 indicates that localised restrictions in the wake of the second wave of Covid-19 may have affected the sequential momentum in e-way bills.

• Despite the second wave, Indian businesses have once again shown remarkable resilience. The goods and services tax revenue crossing Rs1 lakh crore for the last seven months in succession is a clear indication of sustained economic recovery during this period.

• Forecast of a normal southwest monsoon and the slight softening of the pressure on oil prices may soften food and fuel inflationary pressures, respectively. A combination of high international commodity prices and logistics costs, however, may push up input price pressures across manufacturing and services

• With the prediction of a ‘normal’ monsoon, the government has set a record target to raise food grain production by 1.3% during 2021-22 crop year, starting July.

• Data for 17 states and union territories that have presented their final budgets for 2021-22 showed a budgeted capex expenditure growth of 9.7% in 2021-22 over the revised estimates for 2020-21. This will be pivotal in bringing back the economy on a high growth trajectory, thereby facilitating buoyant revenues and a sustainable fiscal path in the medium term.

• The significant growth in exports in April 2021 compared with 2019 provides a tentative indicator of the positive impact of the policy focus through, inter alia, the production linked incentive scheme.

• Launch of G-SAP 1.0 towards stable and orderly management of the yield curve is a significant tool for forward guidance.

The Mahatma Gandhi National Rural Employment Guarantee Act was bedrock of support for rural India in times of crisis, the newsletter said. The scheme became the main livelihood source for millions of migrants and other workers in rural India providing much needed daily wages and subsistence. It provided employment of a record 389 crore persondays to 7.6 crore households and 11.2 crore persons in FY21.