Economy

Economy sputters as core sector slips, imports dip, fiscal deficit rises

Our Bureau New Delhi | Updated on September 30, 2020 Published on September 30, 2020

Indian economy Troubled times   -  /iStockphoto

Divestment target not to be met; Govt says will not borrow more this fiscal year

There was disappointing news on the economy front on Wednesday, with the contraction in the eight core infrastructure industries deepening a tad more in August at 8.5 per cent from 8 per cent in July, and the fiscal deficit in April-August hitting 109 per cent of the full-fiscal year target.

While at first look the rise in the RBI’s Current Account surplus appears a piece of good news, it only hides the steeper fall in imports, which means many sectors are yet to recover. The Disinvesment Secretary saying the sell-off target will not be met offerred no cheer, either.

 

Core sector woes

Despite the phased easing of the lockdown, the eight core sector industries’ output contraction deepened to 8.5 per cent in August, official data showed on Wednesday.

This is the sixth straight month of contraction since March when the core industries contracted 8.6 per cent. For the April-August period, the core sector output contracted 17.8 per cent.

Deficit worries

Considering the higher expenditure on account of Covid, the fiscal deficit during the first five months exceeded ₹8.7-lakh crore, that is, 109.3 per cent of the annual target estimated in the Budget. It was ₹5.5-lakh crore during last fiscal.

Aditi Nayar, Principal economist at ICRA, projected net tax revenues, non-tax revenues and disinvestment proceeds to together falling short by an alarming ₹6-lakh crore.

However, expenditure would be augmented by the fiscal support announced under the ‘Aatmanirbhar Bharat Abhiyan’ as well as the cash outgo for other items included in the First Supplementary Demand for Grants. “Our baseline estimate is that the Government’s fiscal deficit will spike to ₹14-lakh crore in FY 2021 from the budgeted ₹8-lakh crore,” she said.

No additional borrowing

Despite this situation on the fiscal deficit front, the Finance Ministry maintained that it will not go for additional borrowing over and above ₹12-lakh crore planned

Giving details about the borrowing plan for the second half, Economic Affairs Secretary Tarun Bajaj said that 66 per cent (₹7.66- lakh crore) was done during first half and now remaining 34 per cent (₹4.34-lakh crore) will be done during second half. The Centre will complete its borrowing by January 29 as it did last year.

Does this mean the Centre is keeping a buffer for any further borrowing,?

“The States which have been allowed increased borrowing, would actually be borrowing in the second half. February and March have been kept for them. With the opening up of the economy and with further activities on the economic front, we also expect that in the third and fourth quarter, the private sector will show more activity and that period has also been kept for them to borrow money from the market,” Bajaj said while emphasising that ₹12-lakh crore is expected to be sufficient for the Central Government to carry on its activity till March 31, 2021

Bajaj explained that the borrowing will be done in 16 weekly tranches of ₹27,000-28,000 crore each. The tenure of the bonds will be from 2 years to 40 years with maximum borrowing through 10 years Government Securities.

Current account surplus

India’s current account balance (CAB) recorded a surplus of $19.8 billion (3.9 per cent of GDP) in the first quarter (Q1: April-June) of 2020-21. The surplus was on account of a sharp contraction in the trade deficit to $10 billion due to steeper decline in merchandise imports relative to exports on a year-on-year basis, according to the Reserve Bank of India.

CPI-IW up

Retail inflation for industrial workers increased a tad to 5.63 per cent in August against 5.33 per cent in July on higher food prices.

 

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Published on September 30, 2020
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