India’s May infrastructure output slumps 23.4%
NEW NORMAL This is the third straight month of decline in the eight sectors
NEWDELHI: India’s infrastructure output slumped 23.4% in May, but at a slower pace than April’s 37%, signalling a bottoming out as the country gradually limps back to normalcy from a prolonged lockdown that has pummeled the domestic industry.
The country’s fisc continued to show increasing signs of stress while the current account turned positive in the March quarter because of lower imports.
May was the third straight month of decline in the eight infrastructure sectors.
Only fertilisers recorded an increase with a 7.5% rise in production. The core sector data issued by the industry department showed large declines in output in sectors such as steel (48.4%), cement (22.2%), electricity (15.6%) and refinery products (21.3%).
This was in line with expectations of most economists that April will be the worst hit due to the nationwide lockdown to contain the coronavirus outbreak while things will start to improve from May onwards.
Prime Minister Narendra Modi and chairman of the 15th Finance Commission NK Singh have earlier said that multiple green shoots of recovery are visible in the economy, citing fertilizer production and auto sales data, and robust employment print. The manufacturing Purchasing Manager’s Index (PMI) released by IHS Markit in June stood at 47.2, slightly better than 30.8 in May, but still below the 50-mark that divides contraction from expansion. The gradual recovery was seen for instance in Maruti Suzuki India Ltd, which sold 18,539 vehicles in May after failing to sell a single unit in the preceding month. India’s top carmaker reopened two of its plants in a phased manner last month after the government eased lockdown curbs.
Meanwhile, the unemployment rate declined sharply in recent weeks, coming close to the pre-lockdown levels, according to the Centre for Monitoring Indian Economy, or CMIE.
Global rating firms, however, continue to keep their dim projections for the Indian economy this fiscal. Fitch Ratings said in its latest Global Economic Outlook (GEO) on Tuesday, that it still expects India’s gross domestic product (GDP) to contract by 5% in FY21. “In India, where authorities imposed one of the most stringent lockdowns globally to try to halt the spread of the virus, measures are being relaxed only very gradually; with a limited policy easing response and ongoing financial sector fragilities, we have pared our 2021 forecast to 8% from 9.5% in the previous GEO,” Fitch Ratings said.
Data issued separately by the Controller General of Accounts on Tuesday showed that the fiscal deficit breached 58.6% in the first two months of FY21 against 52% in the same period a year ago.
With a severe squeeze in revenue receipts amid a marginal contraction in total spending, the fiscal deficit widened to ₹4.7 lakh crore during April and May, signalling a challenging fiscal year amid rising demand for resources to fight the Covid-19 pandemic.
Prime Minister Narendra Modi on Tuesday announced the extension of free ration to 800 million Indians for another five months at a cost of ₹90,000 crore, which would put additional pressure on the fisc.
India’s current account balance recorded a surprise marginal surplus at 0.1% of GDP in the March quarter, compared with a 0.4% deficit in the December quarter, after a gap of 12 years because of lower trade deficit and higher remittance inflows, data released by the Reserve Bank of India showed.