COVID’s 2nd wave may marginally dampen India’s growth prospects

COVID’s second wave is expected to stunt rural demand, consequently, marginally dampening India’s 2021 growth prospects. According to economy observers, the heavy impact of pandemic in rural areas as well as rise in healthcare and other associated costs will slow down rural demand.

Significantly, this will impact sectors ranging from two-wheelers, tractors, cement and consumer durables amongst others.

“Agricultural production will remain robust but rural consumption may get impacted due to spread of Covid,” India Ratings’ Principal Economist Sunil Kumar Sinha told IANS.

As of now, India suffers from a massive spike in Covid-19 infections.

The latest spike has brought in record number of patients, thereby, impeding healthcare infrastructure’s ability to deal with the surge.

Consequently, the situation has forced state governments to implement local lockdowns and travel restrictions which have started to slowdown economic activity.

“Rural demand may be dented given the high health expenses related to COVID-19,” said Aditi Nayar, Chief Economist at ICRA.

“However, a normal monsoon will be a palliative over the remainder of the year.” In terms of growth impact from a slower rural demand, Emkay’s Lead Economist Madhavi Arora said factors such as better adapted firms and policy response, stable financial conditions, vaccine drive, pent-up demand release and robust global growth spillovers create growth buffers.

“Assuming COVID-II peaks in May’21 and restrictions ease by Q2FY22, we mark down our FY22 GDP forecast to 9.9 per cent from 11 per cent earlier, with a further downward bias.” Besides, any impact on agricultural production will flare-up inflation dashing hopes of any policy easing as well as credit growth of the sector.

However, healthy monsoon season as well as the declining trend of second wave especially before the sowing season will arrest the fall in rural demand.

“India is likely to receive normal south west monsoon seasonal rainfall as predicted by IMD which raises the prospects of good harvests. However, the spread of the COVID-19 to the rural areas is a cause of greater concern,” said Arun Singh, Global Chief Economist, Dun & Bradstreet.

“The poor state of rural health infrastructure and the influx of migrant labourers owing to various restrictions in urban areas could possibly offset a larger share of the gains from the good agriculture output.”

According to Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research: “There is a forecast of a timely and adequate monsoon in the current year which we expect will help to maintain healthy agricultural growth in FY22. While the spread of COVID 2.0 in rural areas may impact the agricultural sector, the extent will depend on the duration of the pandemic wave.” “If the pandemic intensity continues in the sowing season in June-July, there may be a potential impact on the Kharif crop but it is difficult to ascertain that at this stage.”

Meanwhile the Indian Industry welcomes GST Council’s decisions, says zero rating of COVID-relief items should be explored.

India Inc. has largely welcomed the decisions taken by the GST Council on Friday to exempt COVID relief items from duty and easing compliance burden for taxpayers but said the measures stopped short of giving complete exemption to taxpayers from late fee payment and also missed out on providing zero rating of COVID supplies.

Industry body FICCI said that the Council’s decision providing relief on import of COVID-related items and Black Fungus drug were a welcome move, and now GoM recommendations would be awaited to see what action is proposed on GST rate for other medical supplies for Covid including that for vaccines and ventilators.

“We welcome the decisions announced by the GST Council. We appreciate the government’s efforts in fighting the Covid-19 pandemic and enabling better access to medical products and solutions to the country and are happy that some of the key asks from FICCI have been considered,” Uday Shankar, President, FICCI, said.

“We eagerly look forward to the report of the Group of Ministers formed for consideration of further reductions in GST rates on Covid-related essentials. A quick decision on this front will help us attain self-sufficiency in this need of hour. At this juncture we cannot afford to lose further time,” he added.

The GST Council on Friday extended relief on import of Covid-related relief items, if purchased or meant for donating to government or any other relief agency, by exempting it from the Integrated Goods and Services Tax till Aug. 31, 2021. Also, the drug required for treating Mucormycosis fungal infection, has been included in list of items exempted from IGST.

Furthermore, the Council also recommended amnesty scheme to reduce the late fee and provide some relief to the small taxpayers. However, FICCI recommended a waiver from the late fees and interest to provide maximum benefit to taxpayers hit hard by pandemic disruptions.

The decision regarding extension of due dates of various compliances under GST laws for the month of May and June, 2021 will also provide a big relief to the taxpayers during this difficult time. Also, the announcement regarding optional return filing for 2020-21 for taxpayers with a turnover less than Rs 2 crore will provide a further respite to the smaller companies.

“FICCI was also hoping to see a decision regarding our long pending demand for zero rating of healthcare services for a period of 24 months during this pandemic period for the healthcare sector. We believe this would further empower the healthcare undertakings to prepare and tackle the ongoing second wave and impending third wave,” Shankar said.

Also, though it was pointed out that amid the current situation it is not the right time to undertake correction of inversion duties, FICCI feels that the matter warrants a quick decision as it continues to impact our competitiveness.