Fresh wave of COVID-19 may pull down growth below double digit: Ex finance secretary

Former Finance Secretary S C Garg on Monday said the fresh COVID-19 wave and consequent local lockdowns may bring down the economic growth to less than 10 per cent in the current fiscal. Earlier this month, International Monetary Fund (IMF) projected an impressive 12.5 per cent growth rate for the country in 2021. The Economic Survey projected a growth rate of 11 per cent, while RBI retained its growth forecast at 10.5 per cent for the ongoing financial year.

As per the RBI estimates, economic growth expected to be 26.2 per cent in Q1, 8.3 per cent in Q2, 5.4 per cent in Q3 and 6.2 per cent in Q4 this fiscal.

Garg in a blog said the COVID-19 surge in the second wave and the flurry of restrictions imposed have 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 15-20 per cent as against a contraction of about 24 per cent during the same period last financial year.

In the absence of a fresh wave, he said, the growth would have been in the range of 25-30 per cent.

Giving assessment for the entire financial year, he said, "At this point of time, 2021-22 growth going down to a little below 10 per cent looks quite real".

While praising the idea to junk national lockdown, he said the nuanced approach used so far is likely to limit the monthly damage to less than 0.5 per cent compared to 4 per cent contraction a month had there been 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 sector economic activities (manufacturing, utilities, construction etc.) will also have only a minor bruising," he said.

Observing that the restrictions imposed are concentrated on the tertiary sector like retail, hotel, personal services, education etc, he said those economic activities that have been digitalised like IT services, telecom, financial services and retail and 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. My assessment suggests that production/value-added is only marginally negatively impacted in the primary, secondary, government and digitalised tertiary sectors, which makes up about 75 per cent of GDP," he said.

The remaining 25 per cent of GDP, by and large in the non-digitalised contact intensive services, will have a more serious impact, he added.