With the Covid-19 vaccination drive making further headway and teeming festivities lending credence to the ongoing economic recovery, further demand stimulation, fuller restoration of supply chains and greater employment generation are in the offing, the finance ministry said on Wednesday.

The stage is also set for a much-awaited revival of the investment cycle, and exports — backed by an industrial resurgence in advanced economies — have turned out to be a growth engine, the department of economic affairs said in its October report. An almost 20% jump in capital goods output in August, as revealed by the latest industrial production data, portends a surge in investment, it added.

The recent cut in excise duties on petrol and diesel (by Rs 5 and Rs 10 per litre, respectively) by the Centre will soften the inflationary pressure, which has already started coming down, it said. An expected further drop in food inflation, which hit a 30-month low in September, will have additional benign impact on headline inflation, it added.

However, core inflation, which reflects hardening of input costs and ripple effects of escalating global crude oil prices, poses concerns. “Yet, these concerns have not embedded themselves in self-fulfilling inflationary expectations as seen in RBI’s inflation survey,” the report said.

While retail inflation eased to 4.4% in September, core inflation remained sticky at 5.9%, driven mostly by continuous increase in international oil price, the report said. Following the excise cut by the Centre, about two dozen states and Union territories, mostly governed by the BJP, have also trimmed the value added tax on fuel.

The report projected an acceleration in credit growth from the mostly subdued levels in the aftermath of the Covid outbreak, given the improvement in debt resolution and recovery, as evidenced in declining gross bad loans and rising profitability of state-run banks. As such, the finance ministry had advised banks to undertake district-wise loan outreach programmes to boost lending ahead of the peak festival season. Lenders sanctioned credit worth Rs 63,574 crore to 1.38 million borrowers through the outreach between October 16 and 31.

Moreover, the diversification of funding sources away from conventional bank credit towards commercial paper route and equity market, too, is very much underway.
Credit disbursement by banks still remained moderate, with year-on-year growth at 6.5% in the fortnight through October 8, compared with 6.7% in the previous fortnight and 5.7% in the corresponding period last year.

However, barring large industries, bank credit to most sectors grew at a healthy pace. Personal loans recorded an impressive 12.1% jump, with loans for consumer durables growing at a stupendous 40% from a year before, tracking the uptick in consumer spending in the festive season.

The Atmanirbhar Bharat mission, encapsulating major structural reforms, has been instrumental in shaping the economic recovery, both through the signalling of business opportunities and expansion of spending channels, the report said.