Rising Covid cases a major downside risk to India's growth: FinMin report

The report sees the GDP growth to be in positive territory in the second half of 2020-21

A major downside risk to India's economic growth continues to be the pandemic-induced morbidity and the rising coronavirus cases that has elevated health stimulus as a key macroeconomic lever for India’s continued recovery, the finance ministry said in its monthly economic review report for February.
 

"While India continues to avoid the second wave of pandemic, there has been a surge in cases in eight states underscoring once again the inevitability of social distancing in keeping the pandemic at bay until a critical mass of inoculated population builds up immunity to control the growth of infection in the country," the department of economic affairs said.
 

"For a country that has continuously maintained one of the lowest fatality rates and highest recovery rates across the world through relentless testing, quick isolation and speedily delivered health care, the practice of social distancing is critical to preserving the successes so far achieved on the health front," it added.

The report said that the GDP growth is expected to be in positive territory in the second half of 2020-21, on the back of higher government expenditure, moderated contraction in private consumption and net exports emerging out of dismal retrenchment.

"While global and domestic inflation pose some downside risks in the near term, continued policy support to bolster private investment and discretionary consumption, the key levers of India’s growth story, continues to be an absolute policy priority of the government."

It also noted that while the global coronavirus situation and economic recovery remains precarious, Indian economy continues to pick up pace with broad-based resilience.
 

The expansion of services activity since the beginning of 2021 is particularly noteworthy as people overcoming the fear of the pandemic have shown preference for enhanced mobility, albeit at the risk of increasing the infection rate, it said.

The report stressed on the positive agriculture outlook and said it continues to be a key lever of rural demand revival and consumption acceleration.

"India is not yet out of the danger of the pandemic. Social distancing continues to be the most effective tool to combat the pandemic as activity levels continue to rise in the economy boosted by the rapidly escalating inoculation drive in the country," the monthly economic report said. 

"As demand contraction wears off, as evidenced in the 2nd Advanced Estimates of PFCE, and government investment in infrastructure crowds-in its private counterpart besides inducing a multiplier effect on consumption, push to process simplification and structural reforms such as labour codes gain traction, private investment too is expected to rebound. The nascent industrial recovery is thus slated to come of age," it said.