In its July monthly economic report, the FinMin said, “With India unlocking, the worst seems to be over as high-frequency indicators show an improvement from the unprecedented trough the economy had hit in April 2020. These include Index of Industrial Production (IIP), Purchasing Managers Index (PMI), power generation, production of steel and cement, railway freight, traffic at major ports, air cargo and passenger traffic, e-way bill generation capturing the inter-state movement of goods, consumption of petroleum products and motor vehicle registration among others.”
Also, the FinMin points out that India’s inflation has eased in June relative to the previous two months indicating weak demand pressures and food supply chain recoveries. Volatility in most of the essential commodity prices stabilised reflecting their uninterrupted availability.
Furthermore, growth in money supply is commensurate with the potential demand for credit in the commercial sector although part of the growth has been driven by a surge in net foreign exchange assets. Government has been deploying surplus liquidity available with banks to finance critical support to the economy damaged by the pandemic. Although this has challenged the fiscal position, the government has been rationalizing expenditure to ease the fiscal burden. GST collections have also provided some respite with YoY contraction falling from 38.2% in May 2020 to 14% in July 2020, adds the FinMin.
India’s GDP growth in advanced economies is ranging from (-) 3.4% to (-) 14.2% and in emerging markets economies, between 2.9% and (-) 6.8% during January – March quarter. Adding, the FinMin states that India, which went into the lockdown mode only in the last week of March, grew at 3.1 per cent in this quarter.
However, FinMin adds saying, “risks on account of rising COVID-19 cases and intermittent state lockdowns remain.”
Going forward, the forecast of a normal monsoon at 102% of the long-period average (LPA), agriculture, which contributes about 15% of total gross value added, says FinMin, ” is set to cushion the shock of COVID pandemic on the Indian economy in 2020-21.”
FinMin also said, “Timely and proactive exemptions from COVID-induced lockdowns to the sector facilitated uninterrupted harvesting of rabi crops and enhanced sowing of Kharif crops.”
In its June 2020 update, the International Monetary Fund (IMF) has projected global output to contract by 4.9% in 2020, while OECD’s projections are harsher at 7.6%. FinMin said, “GDP figures of April-June quarter of 2020, slated to be released towards the end of August, will throw some light on the expected recovery of the Indian economy.”
