NEW DELHI: As the second COVID-19 wave induces lockdown in many parts and continues to claim lives, the finance ministry on Friday admitted it has posed a downside risk to economic activity in the first quarter of this financial year. However, the ministry was quick to add that damage will not be as severe as was seen during first wave.
"The second wave in India is witnessing a much higher caseload with new peaks of daily cases, daily deaths and positivity rates and presents a challenge to ongoing economic recovery. With infections forcing localised or state-wide restrictions, there is a downside risk to growth in the first quarter of FY22. However, there are reasons to expect a muted economic impact as compared to the first wave," the report noted.
The fiscal position of the central government, the report said, has witnessed an improvement in the recent months with a revival in economic activities during the second half of 2020-21. One positive factor was robust GST collection, which has exceeded Rs 1 lakh crore in each of the last six months.
As per provisional figures, net direct tax collections for 2020-21 were 4.5 per cent higher than Revised Estimates (RE) and 5 per cent higher than collections in 2019-20 - the significant growth compared to 2019-20 provides an indication of economic recovery since the first wave.
However, the report noted that the second wave of the pandemic hit the market sentiment as Nifty 50 and the S&P BSE Sensex recorded losses of 0.4 per cent and 1.5 per cent, respectively in April, and the rupee depreciated by 2.3 per cent to reach 74.51 INR/USD in April. This was mirrored by net FPI outflows of $1.18 billion in April.
It assured that domestic financial conditions will continue to remain comfortable with RBI’s support to liquidity and with open market operations worth Rs 3.17 lakh crore carried out in 2020-21. However, there are concerns on credit growth, which continued to be muted at 5.3 per cent as on April 9. Agriculture, medium industry and trade services led the credit offtake in March, it added.
The index of Industrial Production in February registered a decline of 3.6 per cent (YoY) and 3.9 per cent against January 2021, while the eight-core sector index posted a 6.8 per cent growth (YoY) in March and 11 per cent sequentially.