The second wave of the pandemic has put downside risk to economic growth for the first three months (April-June) of the current fiscal, a report by the Finance Ministry said on Friday.
“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,” a monthly report by the Economic Affairs Department said. However, further mentioned, 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 report said.
These remarks have come when many of the agencies gave new growth projections for the current fiscal with Fitch is the latest one. On Thursday, Fitch projected India’s GDP growth for FY 2021-22 at 9.5 per cent with downside risk. Earlier, S&P said that the second Covid wave may derail a strong recovery in India’s economy and credit conditions and could dent growth projection up to 2.8 per cent. Its latest projection is 8.2-9.8 per cent for the current fiscal. Though, RBI has not revised its projection but has said that the high frequency indicators are emitting mixed signals. “The RBI will closely and continuously monitor all incoming data to assess on a real time basis the impact of the second wave on macro-economic and financial conditions,” RBI Governor Shaktikanta Das said earlier this week.
Highlighting current economic situations, the report quoted RBI surveys highlighting that consumer confidence for the current period has weakened in March 2021 and dipped on the back of deteriorating sentiments on the general economic situation, income and prices. Respondents, however, expressed optimism for the year ahead, which was reflected in the future expectations index (FEI); one year ahead sentiments on all major parameters except prices, however, remained in positive terrain.
According to surveys, with higher essential spending vis-a-vis a year ago, most consumers reported higher overall expenditure, which is expected to increase further in the coming year despite continuing moderation in discretionary spending. RBI’s 28th round of services and infrastructure outlook survey (SIOS) conducted during January-March 2021 indicated some moderation in the overall business situation and turnover in Q4 FY20-21 after a pace of strong recovery in Q3. Nonetheless, “respondents exuded optimism regarding the business situation, employment conditions and turnover for Q1 to Q3 of FY 21-22. Infrastructure companies were optimistic about Q4 of FY2020-21 expecting a sharp uptick in the overall business situation,” the report said.
In April, due to the second wave in India, the momentum in economic recovery since the first wave has moderated. Agriculture continues to be the silver lining with record foodgrain production estimated in the ensuing crop year on the back of predicted normal monsoons. Rural demand indicators like tractor sales recorded a growth of 172 per cent and 36 per cent compared to a low base in March 2020 and even the pre-Covid month of March 2019, respectively.