The government is “cautiously optimistic” about the revival of growth later in this fiscal, despite the pandemic-induced lockdown, and the country’s current account may witness a small surplus in the June quarter, the finance ministry has said in its monthly report on the macro economy.
Although some agencies have forecast zero to negative growth for FY21 following the lockdown, chief economic advisor Krishnamurthy V Subramanian has pegged it at 1.5-2%. As for the country’s current account, the deficit declined to just 0.2% of the GDP in the December quarter of FY20, compared with 2.7% a year earlier and 0.9% in the September quarter.
The report said inflation outlook remains benign with economic inactivity leading to a broad-based deceleration in price pressures, particularly energy. Even though supply chains were disrupted by the Covid-19 outbreak, harvesting and procurement operations gathered momentum, with an active FCI and supportive railways increasing volumes of transferred grains. The government refrained from releasing the retail inflation data for April on ground of disruptions caused by the lockdown. However, retail inflation in March eased to 5.91% from 6.58% in the previous month.
The external sector has acquired “resilience manifest in improvement in balance of payments (BoP) position despite being challenged by net FPI outflows” for some time. “A comfortable BoP rests on manageable current account deficit (CAD), prudent external debt and robust availability of foreign exchange reserves adequate to finance more than eleven months of imports. As a considerable drop in domestic economic activity significantly curtails imports, India’s current account balance may generate a small surplus in the first quarter of 2020-21,” the report for the month of April highlighted.
On the external front, the rupee weakened against the dollar with sharp foreign portfolio investor outflows. “Yet, rupee outperformed its emerging market peers displaying a new found resilience in the forex market. Further, rupee depreciation did not inflate crude oil import bill as its price crashed in global markets,” it said. However, gold imports turned costlier with gold price spiking, riding on the yellow metal’s safe haven appeal.