Second COVID-19 wave may bring down economic growth below double digit

Former Finance Secretary S.C Garg believes the second COVID-19 wave and consequent local lockdowns may bring down the economic growth to less than 10% in the current fiscal. The International Monetary Fund had earlier this month projected an impressive 12.5% growth rate for the country in 2021.

The Economic Survey projected a growth rate of 11%, while the Reserve Bank of India retained its growth forecast at 10.5% for the ongoing financial year. As per the RBI estimates, economic growth expected to be 26.2% in Q1, 8.3% in Q2, 5.4% in Q3 and 6.2% in Q4 this fiscal.

In a blog, Garg said the COVID-19 surge in the second wave and the flurry of restrictions imposed has dented the growth impulse for the year. “It is difficult to estimate the intensity and length of surge and virus caseload. How the government handles its response to this unfolding tragedy, the kind of restrictions which the governments might put in place and how the people respond will determine the impact on both demand and supply,” he said.

The first-quarter growth is expected to be tempered around 15 to 20% as against a contraction of about 24% during the same period last financial year. In the absence of a fresh wave, Garg said the growth would have been in the range of 25 to 30%. In regards to the entire financial year, he said that at this point of time 2021-22 growth going down to a little below 10% looks quite real.

Garg said the nuanced approach used so far is likely to limit the monthly damage to less than 0.5% compared to 4% contraction a month, had there been a complete lockdown. “The type of restrictions imposed in parts of the country, this year will not impact primary sector economic activities (agriculture, mining etc) more or less. Secondary economic activities (manufacturing, utilities, construction etc) will also have a minor bruising.”

He observed that the restrictions imposed are concentrated on the tertiary sector like retail, hotel, personal services, education etc. Economic activities that have been digitized like IT services, telecom, financial services and retail, distribution may not be impacted largely. “One can only make a broad-brush assessment of the economic impact of surging COVID-19 and the restrictions imposed.”

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Garg said his assessment suggests that production, value-added is only marginally negatively impacted in the primary, secondary, government and digitized tertiary sectors which makes up about 75% of the GDP.