Finmin report: ‘Recovery to gain more traction in H2’

The report highlighted recent strong performance exhibited by a range of indicators, including manufacturing and services PMI, exports and GST collection, to suggest a spurt in economic activity.

Currency in circulation also dropped in November “to reflect an uptick in consumer sentiment”. Buoyancy in the external sector continued well into November, with broad-based growth in merchandise exports, despite rising container shipping cost.
Currency in circulation also dropped in November “to reflect an uptick in consumer sentiment”. Buoyancy in the external sector continued well into November, with broad-based growth in merchandise exports, despite rising container shipping cost.

India’s real gross domestic product (GDP), which grew 8.4% in the September quarter and even exceeded the pre-pandemic output level, will likely gain further
traction in the remaining quarters of this fiscal, the finance ministry said on Saturday.

The strong recovery is evident from 19 of 22 high-frequency indicators in September, October and November, as they crossed the pre-Covid (the corresponding months of FY20) levels, the department of economic affairs said in its report for November.

The report forecast an annual growth rate of 7%-plus for India until the end of this decade “on the back of a series of second generation and more nuanced structural reforms in the pandemic years of 2020 and 2021”.

RBI has projected 9.5% growth for FY22, implying a 1.6% rise over pre-pandemic (FY20) GDP level. Major multi-lateral and credit rating agencies expect India to grow between 8% and 10% in the current fiscal and in the range of 7% to 10% in FY23. “India will be among the few economies to rebound so strongly from the contraction last year due to Covid-19,” it asserted.

However, the report also flagged potential risks from Omicron, a new variant of Covid-19, to the ongoing global recovery. Nevertheless, preliminary evidence suggests that Omicron is expected to be less severe and more so with increasing pace of vaccination in India, it added.

India is among the few countries that have recorded four straight quarters of growth amid the Covid-19 pandemic (from Q3FY21 to Q2FY22), reflecting the ‘resilience’ of the economy.

The good expansion in real GDP in the September quarter was “driven by a revival in services, full-recovery in manufacturing and sustained growth in agriculture sectors”.

“The recovery suggests kick-starting of the investment cycle, supported by surging vaccination coverage and efficient economic management activating the macro and micro drivers of growth,” the report stressed.

On the demand side, exports and investment constituted the macro drivers rising by 17% and 1.5%, respectively, over their pre-pandemic levels. “Recovery in private consumption also jumped from 88% (of the pre-Covid level) in Q1 to 96% in Q2 to become an emerging macro growth driver,” it said.

The report highlighted recent strong performance exhibited by a range of indicators, including manufacturing and services PMI, exports and GST collection, to suggest a spurt in economic activity.

Currency in circulation also dropped in November “to reflect an uptick in consumer sentiment”. Buoyancy in the external sector continued well into November, with broad-based growth in merchandise exports, despite rising container shipping cost.

Domestic institutional investors invested over Rs 30,000 crore in the capital market in November, despite a selloff by foreign portfolio investors. Net FDI touched $20 billion in the first half of this fiscal as it did in FY21. Foreign exchange reserves stood comfortably at $640.4 billion as of November 19, which would be enough to finance more than a year of imports.

The monetary policy committee continued with the accommodative stance “to restrain borrowing costs rising in the near future”. “In addition, excise duty cuts with its softening impact on inflation has enabled the 10-year G-sec yield soften from 6.38% at end-October to 6.33% on November 26. Emulating the decline in G-sec yields, corporate bond yields softened as well,” the report added.

While large companies increasingly resorted to non-bank sources of funding, November saw growth in bank credit reaching 7% from a year before on the back of “comfortable liquidity persisting in the financial system and declining borrowing costs reflective of full transmission of repo rate cuts”, the report said.

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