Union Finance Ministry. (PC-PTI)
An increase in the number of active COVID-19 cases in India poses a major downside risk to economic growth, the Finance Ministry said in its monthly economic report on March 5.
The 'Monthly Economic Review' for February also stated that a higher-than-expected subsidy outlay in 2020-21 has led to real gross domestic product (GDP) contraction projections to be larger than that of real Gross value added (GVA), an unusual occurrence in itself.
"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 report said, adding that the pace and spread of the vaccination programme will be crucial over the coming months.
"Rapid production and deployment of COVID-19 vaccination will be critical to taking forward the health stimulus deep into FY22 and India is well in position to do so having become the largest producer of vaccine in the world and currently ranked third behind the US and the UK in administering vaccine doses," it said.
On March 4, nearly 17,000 new active cases were reported from across India, even as 13.8 lakh people received COVID-19 vaccine doses. Cumulative cases stand at 1.12 crore, with 1.08 crore recoveries and 1.8 crore vaccination doses administered.
On the issue of the official advance estimates for 2020-21, the review said that the real GDP forecast of 8 percent contraction was larger than the real GVA forecast of 6.5 percent contraction.
"This is not a normal occurrence. Real GDP growth has been higher than real GVA growth since 2011-12. Recalling that GDP is GVA plus indirect taxes net of subsidies, GDP growth is higher than GVA growth when growth of indirect taxes is higher than growth of subsidies.
"The food and fertiliser subsidy from budget estimates to revised estimates of 2020-21 increased by Rs 3.7 lakh crore. After making adjustments for pre-payment of loans of Rs 2 lakh crore taken for paying subsidy of previous years, the balance Rs 1.7 lakh crore emerged as the additional subsidy paid in the pandemic year. This enhancement caused the growth of subsidies to be significantly higher than the growth of indirect taxes," it said.
The report said that in 2021-22, annual growth of subsidy estimated over the unusually large base of 2020-21 will again become lower than the growth of indirect taxes.