Business Economy

Economy firmly on the path of a V-shaped recovery, says Finance Ministry

Finance Ministry flags prospects of a second COVID-19 wave as ‘downside risk’

India’s economy is firmly on the path of a V-shaped recovery after the collapse in the first quarter, and further improvement is expected in the third quarter, ‘notwithstanding some moderation’ in November’s indicators, the Ministry of Finance said on Thursday, attributing the recovery to the unlocking process along with ‘astute’ stimulus measures.

The prospects of a second wave of COVID-19 infections, however, remains the key downside risk to the economy, with ‘Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh and Delhi probably facing their second and third waves’ in November, the ministry said.

“However, there is a growing cautious optimism that the steep plunges of April-June quarter may not resurface with significant progress in vaccines and contact intensive sectors increasingly adapting to a virtual normal,” the ministry said in a monthly economic report. “The prospects of a vaccine are encouraging but we need to remain on guard till it is approved and permeates to a large section of the population,” it added, urging people to follow COVID-appropriate behaviour and maintain safety protocols earnestly.

Arguing that inflation, which had risen to 7.61% in October, may have peaked, the Department of Economic Affairs in the ministry said consumer price inflation was likely to ‘decelerate gradually’ as base effects would kick in, and food inflation was expected to cool thanks to a good kharif harvest.

Agriculture, which has grown consistently at 3.4% through the first half of 2020-21, is expected to remain the economy’s bright spot with rabi crop sowing showing a healthy rise by the end of November, the department noted in its report. By November 27, overall rabi crop acreage was 4.02% higher, with the area under pulses increasing 43.3%, the ministry pointed out.

However, distress in the rural labour force seems to have worsened. “The demand for jobs under the Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGS) has surged, with a y-o-y growth of 47.2% in November. Till November, 266.67 crore person days have been created under the scheme — a jump of 51.3% as compared to previous year,” the ministry noted.

“This proves that the scheme has been effective in alleviating rural distress in the pandemic period especially to the migrants who returned to their villages. The additional allocation of ₹10,000 crore in the latest package for Pradhan Mantri Garib Kalyan Rozgar Yojana would further give a boost to job creation in the rural sector and supplement rural incomes,” it added.

“This V-shaped recovery, evident at the half-way stage of 2020-21, reflects the resilience and robustness of the Indian economy. The fundamentals of the economy remain strong as gradual scaling back of lockdowns, along with the astute support of Atmanirbhar Bharat Mission has placed the economy firmly on the path of recovery,” the ministry said, referring to the 7.5% contraction recorded in the second quarter following the 23.9% decline recorded at the peak of the ‘stringent’ lockdown in the first quarter.

“The sustained improvement in high frequency indicators in October and November ignite optimism of an improved performance in Q3,” the DEA said, adding that recent fiscal support measures would help revive the economy faster.

“The timely announcement of the third tranche of the Atmanirbhar Bharat package on the eve of Diwali with a multi-sector focus across the labour market, stressed sectors, social welfare, manufacturing, housing, infrastructure, exports and agriculture, is also a significant step towards faster revival of the economy, restoration of lost jobs and creation of new ones,” the ministry said.

“Moving deeper into Q3, there is a cautious optimism that global economic uncertainty does not mirror itself in India notwithstanding moderation of a few high frequency indicators late in the month of November,” it concluded.


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