The economy is witnessing a “sharp V-shaped recovery” after a massive 23.9% contraction of gross domestic product (GDP) in the June quarter, the finance ministry said in its monthly report on Friday.
But as India emerges from the Covid-19 pandemic, it will be “critical to re-orient policy matrix towards a calibrated reconstruction of the economy” and the areas that may require specific attention include agrarian supply chains, factor markets, infrastructure, ICT, start-ups, financial inclusion, skilling and health care, the report said.
GDP contraction in India was much sharper than in advanced economies. The US economy contracted by 9.1%, y-o-y, in the June quarter, the UK by 21.7%, France by 18.9%, Spain 22.1%, Italy 17.7% and Germany 11.3%. The whole euro zone witnessed a 15% slide and Japan contracted by 9.9% in the April-June period.
Although lockdown exerted a heavy economic cost (GDP contraction in India was sharper than in advanced economies), it helped save lives. This is reflected in the fact that India’s fatality rate was just 1.78% as of August 31, compared with 3.04% in the US, 12.35% in the UK, 10.09% in France, 1.89% in Japan and 13.18% in Italy, the report pointed out.
Also, since the easing of the lockdown curbs in June, several high-frequency indicators have shown improvement. Consumption is picking up, with passenger vehicle sales rising to their highest level at 1.83 lakh in July, against 1.43 lakh in March. Some revival in rural demand is also seen in growing sales of small cars, two-wheelers and sports utility vehicles and fertilizers. Increase in registrations for commercial and agricultural tractors from 52,362 in March to 66,061 in August is further indicative of strengthening rural demand.
The railway freight traffic touched 95.2 million tonne (MT) in July, closing on to its previous year level of 99.7 MT. In the first twenty-days of August, railway freight volume of 60.38 MT has crossed its previous year level of 56.60 MT.
Steel production at 74.02 lakh tonne and cement production at 242.47 lakh tonne in July, compared to 86.13 lakh tonne and 280.2 lakh tonne, respectively, a year ago suggest revival of construction activity.
Since May, agriculture has persistently been the brightest spot in the revival of growth. Industrial production is showing signs of recovery with a y-o-y growth in eight core industries output showing a smaller contraction in July than in June.
Power consumption is quickly reverting to the last year’s baseline, reaching 97% of the corresponding level last year. Sustained impetus in E-way bills generated is reflected in their value at `13.8 lakh crore in August, reaching 97.2% of corresponding month of the previous year.
The report pointed out that since the April-June quarter, global activity has entered the expansionary phase with global composite output index moving to a six-month high of 50.8 in July and global manufacturing index reaching a twenty one-month high of 51.8 in August. Increase in world demand continues to reflect in narrower contraction in India’s exports in July than in June.
In the domestic space, rising central government’s consumption spending has been supplementing domestic demand to drive GDP growth. The growth outlook has improved with y-o-y contraction in GST collections declining from 38% in May to 11.9% in August.
“On the back of robust FDI and FPI inflows and savings from tepid imports, forex reserves, as on August 21, have risen to an all-time high of $537.5 billion. These are capable of financing more than 13 months of imports, should the need arise from a surge in real sector activity. The domestic space is flushed with high systemic liquidity,” it said.