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Thursday, November 26, 2020

‘Economy likely to reach pre-Covid levels by fiscal-end, 2nd wave may be headwind’

With GDP growth expected to be higher, the country's fiscal space is set to widen to accommodate other priorities of the government, it said.

By: ENS Economic Bureau | New Delhi | Updated: November 5, 2020 2:27:46 am
Recession: July-Sept GDP to contract 8.6%, estimates RBIThe Indian economy likely entered into a technical recession for the first time in history at the end of the first half of 2020-21, according to the Reserve Bank of India. (Representational Image)

India is expected to recover at a fast pace to reach pre-covid levels by the end of the financial year, conditional to incidence of a second wave triggered by fatigue with social distancing, the Finance Ministry said on Wednesday.

Upturn in manufacturing purchasing managers’ index, services PMI, higher toll collections, healthy kharif output, power consumption, rail freight, auto sales, vehicle registrations, e-way bills, GST collections point to mending of supply chains and pickup in economic activity, Department of Economic Affairs under the Finance Ministry said in its monthly review for October.

Concerns, however, remain on the bank credit and inflation side. There has been marginal uptick in credit growth in early October but banks still remain risk averse, the ministry said. Also, there is pressure on prices of key vegetables like tomatoes, onions and potatoes, but it is expected to ebb in October-December with kharif arrivals, the ministry said.

“Given the trends, India stands poised to recover at a fast pace and reach pre-COVID levels by the end of the year – barring the incidence of a second wave that may be triggered by the fatigue with social distancing. The continuous improvement in forward looking RBI indices of consumption and business sentiment for the next year augurs hope of a strong economic rebound. This is also corroborated by IMF’s October 2020 projection of 8.8 per cent real GDP growth of India in FY 2021-22, highest globally,” the ministry said.

India’s manufacturing PMI rose to 58.9 in October, the strongest improvement in over a decade. The upturn in the sales was the strongest since mid-2008 and was led by the intermediate goods category with robust growth also on the consumer and investment goods sub-sectors, it said. PMI Services index also rose to 54.1 in October, ending the seven-month sequence of contraction.

The ministry said highway toll count and collections have also surpassed their pre-COVID levels (average of January and February), with average daily electronic toll collection and number of transactions in October at Rs 68.9 crore and 39.5 lakh, respectively, as compared to pre-COVID daily averages of Rs 55.4 crore and 32.6 lakh, with improvement seen in all states except Punjab and Delhi NCR, owing to farmer protest induced highway blockages.

It listed the construction sector as one of the crucial growth drivers of the Indian economy, having the capacity to single-handedly push up growth. “With a contribution of 15 per cent to GDP and a share of 12 per cent in the nation’s working population, it triggers a multiplier effect on nearly 250 industries connected through backward and forward linkages,” it said.

For the rising inflation, the ministry said COVID-19-related supply disruptions, including labour shortages and high transportation costs, could continue to impose cost-push pressures, but these risks are getting mitigated by progressive easing of lockdowns and removal of restrictions on inter-state movements. “Turning to the outlook for inflation, the pressures on prices of key vegetables like tomatoes, onions and potatoes should also ebb by Q3 with kharif arrivals. The favourable monsoon rains support the prospects of good harvest and its moderating impact on food inflation,” it said.

The report showed that core inflation, which is the non-food and non-fuel component, shot up sharply in April-June, with urban core retail inflation rising more than rural and overall core inflation rate. Since then, urban core retail inflation has softened, while rural core inflation rate has continued to rise.

With GDP growth expected to be higher, the country’s fiscal space is set to widen to accommodate other priorities of the government, it said. Gross tax revenues, however, have registered a contraction of 21.6 per cent due to the negative growth in all direct taxes and major indirect taxes, except for excise duties. On the back of hikes in taxes on fuel, the excise duties collection has increased by 34.2 per cent during April-September. The non-tax revenue collections fell by 55.9 per cent during the same period.

‘Services sector grows for first time since Feb’

Mumbai: India’s services sector grew for the first time since February in October, after the relaxation of Covid restrictions enabled them to secure new work and lift business activity, a survey said.

At 54.1 in October, up from 49.8 in September, the seasonally adjusted IHS Markit India Services Business Activity Index posted above the 50 no-change mark. —ENS

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