The finance ministry, in a report released on Monday, said that India’s gross domestic product is expected to contract 4.5% in the 2020-’21 financial year as predicted by the International Monetary Fund. The ministry cited “unprecedented Covid-19 induced supply-demand shocks” for the downward revision of the economic growth.

The Department of Economic Affairs, however, added that readings of high-frequency indicators indicate the “emergence of green shoots” in May and June. “These green shoots have a conducive policy environment to grow further and nudge the economy early on the path of economic recovery and growth,” it said in its macroeconomic report for June.

It added that the Narendra Modi government’s commitment towards structural reforms and social welfare measures will help in building on these green shoots. “The resolve for ‘Atmanirbhar Bharat’ [self-reliance] will be strengthened with the collective effort of all stakeholders and contribute to rebuilding a strong vibrant Indian economy,” the report said.

Electricity, fuel consumption, inter and intra-state movement of goods, retail financial transactions are witnessing pick up, the government said.

India had imposed a nationwide lockdown on March 25, which stalled business activity in the country. It was slowly eased, and by June 1, most non-essential services had been allowed to operate in non-containment zones in the country, subject to policies made by states. The second phase of easing lockdown restrictions, called “Unlock 2.0”, started on July 1. Many curbs on movement have been relaxed, though schools, cinemas, gyms and bars will remain shut. The Centre had said that the operations of domestic flights and passenger trains will be further extended.

The finance ministry said that both the government and the Reserve Bank of India have taken “prompt policy measures” – both in short and long term – to revive the economy at the earliest. The report stated that interruption in economic activity also led to shortfall in revenue collection in April and May.

“With huge uncertainty around the pandemic stemming from the unknown, and the inability to plan for or know what’s next, such uncertainty is expected to adversely affect business climate and make firm delay their investment plans,” the macroeconomic report added.

The finance ministry further said that the absence of a vaccine to cure the coronavirus poses a “serious challenge” to the economy. “There is a risk of a second wave of infections as the economies unlock,” it said. “Economic growth of pre-Covid times, as and when restored through fuller unlocking of the economy, will heavily lean on the reforms undertaken today to enhance its potential tomorrow.”

India’s coronavirus infections are rising at the fastest pace. On Monday, the health ministry reported 24,248 new cases and 425 deaths. That pushed India’s overall tally to 6,97,413, surpassing Russia. India is now the third-most affected country globally after the United States and Brazil.

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