BackEconomy still in unchartered zone, rural economy at risk, say economists
India’s economy grew at 4.2% in FY20, a decline from 6.1% expansion in the previous fiscal. The government will release the June quarter GDP print later today
PremiumNEW DELHI: The relentless surge in India's coronavirus case count has been unsettling the fragile economic recovery and threatens to take the sheen out of what was thought to be the silver lining, the rural and agriculture sector, cautioned economists.
India has reported over 3.5 million coronavirus cases so far, including 2.7 million recoveries and over 63,000 deaths.
Economists are worried about the impact of sporadic lockdown measures, imposed by regional administrations to control the pandemic, on the economy.
This has forced economists to trim their earlier estimates for the September quarter growth which assumed infections would have peaked by now. They are also worried about the spread of the disease in rural areas after the reverse migration of workers from cities to villages and in turn the risk it poses to the agrarian economy which was so far seen as a bright spot.
"We have some anecdotal and some hard evidence that the pandemic is beginning to affect the rural economy, which was earlier a big-city problem," said Abheek Barua, chief economist at HDFC Bank. "...The assumption was that the rural sector was relatively insulated and will provide some support but I think we have to temper our expectation a bit about the rural sector’s performance. That said, I think it remains the silver line--a less bright silver line if you like."
"We have an estimate of 21% contraction in GDP for first quarter, 11% contraction for second quarter and positive growth for the last two quarters and a contraction of 7.5% for the whole year," Barua added.
According to Crisil Ltd. chief economist D. K. Joshi, GDP contraction in first quarter is expected to be more than 15%.
Agriculture and allied activities had expanded in the fourth quarter of FY20 at an impressive 5.9% from the year ago period, according to official data.
Barua said the worry was about MGNREGA getting hit due to rising cases in rural areas. “If that is the case, if agriculture is being affected, then the degree of the robustness of their support will not be as much as we have assumed earlier," said Barua.
For Joshi the biggest worry is that the pandemic is far from being under control. "Everything that happens to the economy is a function of the virus being brought under control. If infections peak out towards end of this quarter, there will be some more confidence in economic activity picking up. Until we get to the point of having a Covid-19 vaccine and mass producing it, we are in un-chartered territory and any projection about the economy may be unreliable." said Joshi.
Joshi said the agriculture is the only sector which is at a slightly better position and needs to be monitored.
India’s economy grew at 4.2% in FY20, a decline from 6.1% expansion in the previous fiscal. The government will release the June quarter GDP print later today.
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