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Friday, March 05, 2021

Finance Ministry’s Monthly Economic Report: ‘Driven by reforms, policy push, growth to come back in FY22’

The Finance Ministry expects inflation to stay benign. CPI Inflation moderated to 4.59% in December from 6.93% in November.

By: ENS Economic Bureau | New Delhi |
Updated: February 10, 2021 8:55:35 am
Economy is doing better in year’s second half. Pandemic scars won’t be erased merely by growthBetween January and May each year, India gets to see two “advance” estimates and one “provisional” estimate of GDP growth, as more data becomes available.

A sustained and strengthening economic recovery continues in January across key high frequency indicators, such as power consumption, railway freight, GST collections and manufacturing capacity utilisation, the Finance Ministry said on Tuesday. Growth and inflation outlook reflect a more than full recovery next year, supported by series of measures announced by the government and the Reserve Bank of India, it said.

“The structural reforms and the policy push under the AatmaNirbhar Bharat Mission along with the slew of measures announced in the Union Budget 2021-22 towards achieving broad-based inclusive growth will strengthen the fundamentals of the economy and bring it back on to a strong and sustainable growth path in the year ahead. Growth and inflation outlook in 2021-22 portends more than full recovery,” the Finance Ministry said in its Monthly Economic Report (January 2021) released Tuesday.

Manufacturing and services PMI (Purchasing Managers’ Index) remain in expansionary zone, while bank credit, surging foreign investment flows and corporate bond issuances are providing critical financial cushion to the real recovery, the report said. India’s manufacturing PMI improved from 56.4 in December to 57.7 in January, while PMI Services index also increased from 52.3 in December to 52.8 in January.

Power consumption data, railway freight numbers and Goods and Service Tax collection also point to a recovery taking hold across the economy. Power consumption grew at 5.2 per cent (YoY) in December and 4.8 per cent (YoY) in January, signalling expanding commercial and industrial activity. The report noted that with Covid-19 situation under control, the Union Budget 2021-22 has adopted a counter cyclical fiscal policy to support growth. Higher GDP growth would facilitate buoyant revenue collection in the medium term and enable a sustainable fiscal path.

“The quality of expenditure has been maintained as capital expenditure rises to Rs 4.39 lakh crore in 2020-2021 as against Budget estimate of Rs 4.12 lakh crore. In order to give a sustained push to the economy, the capital expenditure for FY 2021-22 has been targeted to grow at 34.5 per cent over BE of FY 2020-21, and reach Rs 5.5 lakh crore. The fiscal deficit in BE 2021-2022 is estimated to be 6.8 per cent of GDP, reflecting a counter-cyclical fiscal policy carefully planned in times of crisis to boost the growth of GDP,” it said.

The Ministry expects inflation to stay benign. CPI Inflation moderated to 4.59 per cent in December from 6.93 per cent in November, mainly on account of significant decline in food inflation, which dropped from 9.50 per cent to 3.41 per cent. Agriculture continues to remain resilient, and healthy kharif output and rabi sowing lead to robust tractor sales which grew at 41.2 per cent YoY in December.

“As on 29 January 2021, area sown under rabi crops hit a record high of 685 lakh hectares, 2.9 per cent higher than the area sown a year ago. During the 2020-21 kharif season, area sown increased by 4.8 per cent to an all-time high 1117 lakh hectares,” as per the report.

It stressed that India has been successful in bending the Covid infection curve till now and enters the new year with cautious optimism. Daily recoveries have been outnumbering the daily new cases since 8th Jan 2021 with recovery rate growing to 97 per cent. The case fatality rate stands at one of the lowest globally at 1.4 per cent despite having the second largest confirmed cases at 1.08 crore.

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