Growth pangs: Oct-Nov weaker than Sept; doubts rise on revival’s force

Core sectors, power demand, auto/fuel sales barely enthuse; GST, PMI kosher; rail freight up

The economy might have contracted in the December quarter, at a rate even sharper than 7.5% in the previous quarter.
The economy might have contracted in the December quarter, at a rate even sharper than 7.5% in the previous quarter.

After the post-lockdown blip in transactions, driven by release of pent-up demand and festive consumption, a set of economic data for October-November signaled the dire warning that absent concrete and expeditious stimuli, the fragile recovery might be fizzling out.

The economy might have contracted in the December quarter, at a rate even sharper than 7.5% in the previous quarter. The December and March quarters also need to contend with an unfavourable base – the rates of GDP expansions in the corresponding year-ago quarters were anemic, at 4.1% and 3.1%, respectively.

According to official data released on Tuesday, the gross GST revenue collected in November (which are mainly due to transactions in October), was Rs 1,04,963 crore. That is just 1.4% higher than in the year-ago month’s collections, compared with an encouraging 10% growth on year witnessed in October (September sales).

Manufacturing PMI, which had risen to 58.9 in October, the highest in more than a decade, hit a three-month low of 56.3 in November. This was still a strong performance, being squarely in the expansion zone. The output of core sector industries, which have a share of 40% in industrial production, had declined 2.5% in October, after showing rapid sequential improvement to report flat growth in September, in seeming divergence with the solid rise in manufacturing PMI. Electricity demand and diesel sales also weakened in November.

Factory despatches by carmakers, too, were far from encouraging in November after a decent rise in the previous month. Maruti Suzuki India reported a 2.4%% year-on-year drop in domestic wholesale for November to 1,35,775 units, as it cut inventory at dealerships after the Diwali season got over.

To be sanguine, government expenditure and CPSE investments picked up since October. While the economy hasn’t received much government spending support in Q2 – government consumption expenditure declined 22% on year in the quarter –, the Centre’s budget spending rose 9.5% on year in October, after 26% decline in September; also, budgetary capex was up 130% on year in October.

As FE reported earlier, about three dozen CPSEs with annual capex budget of Rs 500 and above were told by the government to raise their capex target for the current fiscal to Rs 3.2 lakh crore, up 50% from the level envisaged at the start of the year. The CPSEs achieved barely a third of the original capex target of Rs 2.14 lakh crore for FY21 during the year’s first half. Including the likes of the NHAI and Railways, the capex achievement in H1 was Rs 1.5 lakh crore, again a third of the combined annual target for all these entities.

Making a case for more aggressive government expenditure at this juncture, former chief statistician Pronab Sen recently said the chances of a strong economic rebound in FY22 hinged on how the government firmed up its Budget for FY22. If public expenditure (by Centre/states/PSUs) is not scaled up, GDP might shrink not just in the current fiscal but even in the second and third quarters of FY22 once the favourable base effect wanes, he warned.

On the positive side, the Railways freight earnings as well as loading continued to rise since the April low; the transporter carried 110 million tonne (MT) of goods in November, compared with 108.1 MT in October and 101 MT a year ago. Its freight revenue also increased to Rs 10,658 crore in November, compared with Rs 10,405 crore in October and Rs 10,208 crore a year ago.

“During the month of November, (GST) revenues from import of goods was 4.9% higher and the revenues from domestic transaction (including import of services) are 0.5% higher than the revenues from these sources during the same month last year,” the government said.

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