Govt pins hope on festive months for growth push

Says reforms will put India on a strong & sustainable growth path in the long run

The finance ministry on Sunday said the festive months are expected to boost economic growth further after high-frequency indicators showed improvement.

It, however, cautioned that the spread of Covid-19 and increase in precautionary personal savings pose risk to economic expansion. The department of economic affairs, in its Monthly Economic Review for September, said critical reforms undertaken by the government will put India to a strong and sustainable growth path in the long run.

Amid criticism over the Centre-states’ strained relations, the report pointed out that the Union government has lent support to states and did not disrupt tax devolution despite the pandemic adversely affecting receipts. On high frequency data, it said increase in global demand has led to expansion of India’s exports at 5.3 per cent in September on a year-on-year (YOY) basis, it said.

Further, at an eight-year high of 56.8 in September 2020, India’s manufacturing purchasing managers’ index augurs well for economic expansion in the coming months. GST collections touched a six-month high of ~95,480 crore in September, a YOY growth of 3.9 per cent.

Recovery in rail freight enabled revenue earnings clock positive YOY growth during the months of August and early September (for the first time since March). Besides, easing of interstate movement restrictions, quarantine policy and unlocking also helped, the report said.

Another positive is that cargo traffic volumes continued to inch up towards previous year levels, reporting a lower contraction in August. With domestic air traffic also increasing, the upcoming festive season is expected to boost growth further.

Net foreign direct investment (FDI) recorded outflow of $0.4 billion in Q1 of 2020-21 against inflows of $14 billion in Q1 of 2019-20.

Net foreign portfolio investment (FPI) was $0.6 billion in Q1 of 2020-21 compared with $4.8 billion in Q1 of 2019-20. This is because net purchases in the equity market were offset by net sales in the debt segment. “India garnered the highest FPI in the first half of 2020 compared to emerging market peers,” the ministry said.

While July and August witnessed record capital raising by leading domestic firms and low global interest rates, net FPI flows moderated to record an outflow of $0.33 billion in September. This is owing to uncertainty around the pace of economic recovery and rising Covid cases. Recent outflows in equities signal heightened volatility in the global markets.

The report said the pandemic is far from over but declining positive cases rate at the allIndia level sets the stage to further push up the frontiers of economic recovery. More than “social distancing”, it is “self-protection with due precautions” that better fits into the context of “Jaan Bhi Aur Jahaan Bhi”, the report noted.

On the negative side, it said the rising precautionary savings are limiting growth in personal consumption and acceleration in activity levels. Concerns remain on India’s current account balance, which recorded a surplus of $19.8 billion (3.9 per cent of GDP) in Q1 of 202021. This is on account of a sharp contraction in trade deficit, driven by steeper decline in merchandise imports relative to exports on a YOY basis, it said.

On reforms undertaken by the government, it said, “The enabling policy environment and initiatives taken by all stakeholders to seize the available opportunities will actualise the growth potential of the Indian economy.”

It cited S&P Global Ratings to buttress its points. It said the rating agency retained India’s investment grade (BBB-) credit rating with stable outlook as it expects the country’s economy and fiscal position to stabilise and begin to recover from 2021.

As of September 25, India’s foreign exchange reserves stood at $542.02 billion, equivalent to more than 13 months of imports. This offers a comfortable buffer to provide for a surge in imports following acceleration in the pace of economic activity.