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Second Covid wave poses downside risks to economic activity, says finance ministry

The ministry says it expects a 'muted' economic impact when compared to the wave. Learning to 'operate with COVID-19' provides a silver lining of economic resilience, it said in its April report.

May 07, 2021 / 01:50 PM IST
(Image: News18 Creative)

(Image: News18 Creative)

The second coronavirus wave poses a downside risk to economic activity in the April-June quarter but a "muted" impact was expected compared to the first wave, the finance ministry has said in its monthly economic report for April.

"The second wave of COVID-19 has posed a downside risk to economic activity in the first quarter of FY 2021-22. However, there are reasons to expect a muted economic impact as compared to the first wave. Learning to 'operate with COVID-19', as borne by international experience, provides a silver lining of economic resilience amidst the second wave," the report said.

The Union Budget 2021-22, presented on February 1, well before the second wave ripped through India, forecasts a nominal GDP growth of 14.4 percent for 2021-22, while the Economic Survey sees a real GDP growth of 11 percent.

As cases have continued to soar since March, a number of independent economists, agencies and banks have cut real GDP forecasts for the current fiscal year, more are expected to do the same in the coming days.

On May 5, global ratings agency Standard & Poor's cut its 2021-22 GDP forecast for India to 9.8 percent from 11 percent. The International Monetary Fund has said it will revisit its 12.5 percent GDP growth forecast for the year.

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A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

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"Globally, COVID-19 cases are on the rise again, notably in India and some countries in Europe and Latin America, with the spread of more infectious variants. April recorded the highest average daily cases of 7.5 lakh witnessing a 58 percent hike compared to previous month," the finance ministry's report said.

The report quoted recent surveys from the Reserve Bank of India that said consumer confidence weakened in March 2021 as the current situation index dipped on the back of deteriorating sentiments on the general economic situation, income and prices.

"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," the report said, indicating inflationary pressures in the coming months.
Arup Roychoudhury

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