Economic Highlight
New Delhi, 6
September 2021
Asian
Gloom
CEA
STOKES HOPE
By
Shivaji Sarkar
After a long time
Chief Economic Advisor Surbramanian Krishnamurthy has given a boost to the confidence
of the nation with his assertion that the Indian economy is poised to grow, as
macro-economic fundamentals are strong. The CEA is categorical that the country
has the capacity to march on despite withdrawal of stimulus globally.
He expects a
double-digit growth - though it would be on minus 23.9 percent growth of 2020-21.
It is reassuring for a nation that has stagnated for almost 18 months on a
decelerated growth during the previous two years. At this stage any positive
growth boosts the confidence of the businesses and creates a favourable
political atmosphere.
The Economic Survey (ES)
estimated a growth of 11 percent and the budget 10.5 percent. UN ESCAP predicts
a troubled ‘K’ shape recovery. The latest RBI Monetary Policy puts it at 9.5
percent. And the first quarter recovery is stated to be 21.4 percent, an
improvement over the forecast made in June over the 18.5 percent. The CEA,
however, is modest and says that the growth will be higher than pre-COVID-19 level
and possibly “the budget and ES predictions should be achieved”.
The nation hopes that
it comes out of a negative psyche and sprints on. The first sign has come with
the eight core sector continued expansion of 9.4 percent. The CEA says that he
agrees with the April-June quarter growth rate. There is a base effect, he
adds. At the same time, it has happened during a much more intense second wave.
There is across the board improvement in a lot of high frequency indicators.
The recovery is “V”
shaped, he says and would continue to be so. He revels on the 49.6 percent
year-on-year growth of the manufacturing sector compared with a 36 percent
contraction last year. The construction grew 68.3 percent. even farm sector did
better in Aril-June with 4percent growth and against 3.5 percent posted earlier.
What Subramanian
indicates is that the nation has come out of a gloomy period and now is poised
grow positively. He does not disagree with some hiccups but the 9.4 percent
recovery of coal, crude oil, natural gas, petroleum & refinery products,
fertilisers, steel, cementand electricity is far better than contraction 7.6
percent in June 2020. The core sector has maintained the growth for the fifth
consecutive month.
There are positive
indicators but still a lot needs to be done as overall there is a financial
crunch and the budget deficit at the end of July was at Rs 3.2 lakh crore –
21.3 percent of the full year target. It is stated to be modest as the figure a
year ago was Rs 8.2 lakh crore and pre-covid level of 5.5 lakh crore.
But there are other
problems. The GST realisation and other revenue realisations are lower. The
economy has not yet come back to health so that revenue realisations, key to
further recovery, grow at healthy pace. Personal citizen economy is still not
in a happy state with loss of jobs, wages and salary cuts. This also affects
purchasing capacity, a necessity for increasing market activities. Besides,
repeated and sporadic surge of the pandemic fears often put activities at bay.
The private equity
and venture capital (PE-VC) deals have tapered in early August despite a
bullish stock market crossing 57000 points at the sensex. It has raised
questions on the nature and quality of investments. Total PE-VC deals were 112
against 126 in July. Despite optimism, the investors are yet shy of entering
into deals as the investors have still problems of cash flow. Investments flows
are dependent on how the line-up IPOs performed. The liquidity has not hit its
peak yet. There are more offers for sale and the buyers are not revving up to
the offers.
Another not so good
indicator is the diesel sales. It has recorded the sharpest fall in monthly
sales since May. It is ascribed to monsoon conditions having hit demand from
the farm, trucking and construction sectors majorly. August data show minor
gains in sales over 2020 but it remains 9.7 percent less than 2019. Even LPG
sales fell marginally – 1.7 percent less than in July 2019 and 2.4 percent less
than August 2019. This shows that at the household level the recovery is not
bright. All eyes are fixed on the ensuing festival season when overall
activities and demand are expected.
So amid this scenario
4 percent dip in GST is not surprising. The July collections were Rs 1.16 lakh
crore. It dipped to Rs 1.12 lakh crore in August. July collections were 30
percent higher than last year and 14 percent more that in 2019. On an average,
except in June, the collections were over Rs 1 lakh crore a month. The
compensation formula for the states will be decided on September 17, when the
GST Council would meet in Lucknow. Still experts are cautious on the recovery
path indicated by the moderation in the August purchasing managers’ index (PMI). Overall unless the individual financial
status improves, the demand would continue to vascillate.
The UPI transaction
value officially is showing improvement but during June to August it has
decelerated. The growth rate of transaction value also moderated. There are
also apprehensions that even the actual transactions show are not real in many
cases.
Overall manufacturing
activities are hit by PMI. It hovers around 52.3 in August. The 50 point mark
the separates the contraction from expansion. It is an indicator that not
everything is that glorious as is made it out to be.
Global and Asian trends
are yet not positive. Japan government offered a bleaker view of the economy in
August. It says the downside risk is heightening – it means overall growth is
falling though for August.
Overall Asian economy
sees the corporate profits declining, falling sales of cars in China and Toyota cutting September production. Factory
activity in the Asia Pacific contracted sharply in July. There are signals of
slowing down in southeast Asia and
Pacific. Asia’s largest firms are likely to post profit decline of 6.2 percent,
according to a calculation of Refinitiv Elkon.Amid such scenario, the CEA’s
statement keeps hopes alive for Indian economy. The market would like to see
Subramanian’s prediction coming true despite all odds. Would it happen? ---INFA
(Copyright, India News & Feature
Alliance)
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