India Says Rising Covid-19 Cases, State Lockdowns Make Recovery Fragile

The Finance Ministry said rising Covid-19 cases and intermittent lockdowns in various parts of the country make India's growth recovery prospects "fragile" despite high-frequency indicators showing the economy is improving from the April lows.

This calls “for constant and dynamic monitoring,” according to the ministry's June economic report. Rural economy, it said, will provide a cushion.

High-frequency indicators, such as Index of Industrial Production, Purchasing Managers Index, power generation, production of steel and cement, railway freight, traffic at major ports, among others, have shown improvement from the unprecedented trough the economy hit in April, the report said.

Many local administrations have imposed lockdowns to curb the pandemic as the new coronavirus is spreading across the country unabated, with India having the third-highest case load in the world. That threatens the recovery after a complete lockdown that's already expected to cause the first contraction in the nation's economy in more than four decades.

The government has been deploying surplus liquidity available with banks to finance critical support to the economy damaged by the pandemic, the Finance Ministry said. “Although this has challenged the fiscal position, the government has been rationalising expenditure to ease the fiscal burden.”

The ministry has asked government departments to not initiate any new public-funded schemes in the ongoing fiscal, besides those announced in the Rs 20-lakh-crore post-pandemic financial package, and also capped spending by some ministries for the April-Sep period.

The report said downside risks to global recovery stem from an over-leverage in the non-financial sector including external debt financing risks, simmering trade and geopolitical tensions, and unprecedented Covid-19-induced unemployment losses, and fears of second major wave of infections. The International Monetary Fund has projected global output to contract 4.9% in 2020, while OECD sees a steeper contraction of 7.6%.

Rural-Led Growth

Agriculture is set to cushion the shock of the pandemic on the Indian economy in 2020-21, the report said.

Terms of trade have been in favour of agriculture, and reinforced rural demand, it said. The push for growth in coming months appears to be pitched in rural India, it said.

“With the favourable spread of monsoon spurring sowing of kharif crops, a bountiful production is expected in 2020-21,” it said.

Also Read: India's Rural Economy Set For A Good Run But Key Concern Lingers

Farmers have sown 88.21 million hectares which is 14% higher than corresponding period of last year as on July 31. This, according to the report, is a big jump in area coverage under oil seeds, coarse cereals, pulses and cotton.