FinMin hopes for better recovery during Oct-Dec quarter

The sustained improvement in high frequency indicators in October and November ignite optimism of an improved performance in October-December quarter (Q3) of FY2020-21, a Finance Ministry report said on Thursday.

Gross Domestic Products (GDP) for July-September quarter (Q2) released earlier showed contraction of 7.5 per cent, lower than experts’ estimate and also in comparison to GDP contraction during April-June quarter (Q1).

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High frequency indicators include GST collection (₹1-lakh crore in two successive months), Purchasing Managers’ Index or PMI (continue to be in expansion mode in November for manufacturing as well as services), e-Way bill generation (around 4 per cent growth in November on yearly basis), besides others. However, the report noted some moderation during second half of November.

According to Monthly Economic Report of the Department of Economic Affairs (DEA), the GDP contraction in India by 23.9 per cent in Q1 can be attributed to the stringent lockdown — in alignment with the predictions of global growth in the event of an exogenous unprecedented shock. There were no fundamental or structural factors responsible for the contraction.

A V-shaped recovery in Q2 of FY 21 was, therefore, expected once unlocking started.

Second wave: A risk factor

The downside risk, however, remains on the spread of a second wave of Covid-19. Still, as the report said, there is a growing cautious optimism that the steep plunges of April-June quarter of 2020 may not resurface with significant progress in vaccines and contact intensive sectors increasingly adapting to a virtual normal.

“The need of the hour is to follow Covid-appropriate behaviour and earnest observation of laid down standard operating guidelines (SOPs) till a vaccine is approved and a large section is inoculated,” it advised.

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According to report, overall increase in rabi coverage with adequately filled irrigation reservoirs bodes well for growth of agricultural output in 2020-21. The sustained demand for labour arising from increase in rabi sowing has also contributed to growth in rural wages additionally propped up by increase in wages and employment generation under MGNREGS.

The additional allocation of ₹10,000 crore in the latest package for Pradhan Mantri Garib Kalyan Rozgar Yojana would give a further boost to job creation in the rural sector and supplement rural incomes. Increase in minimum support prices for both kharif and rabi crops in 2020-21 and progress in rice procurement, have already been supplementing rural incomes in the country.

FDI, FPI inflows

Power consumption and e-Way bills are seen to sustain the growth momentum in November along with continuous increase in average daily electronic toll collection, double-digit growth in rail freight traffic and gradual recovery in passenger earnings.

Foreign Direct Investment (FDI) continues to endorse India’s status as a preferred investment destination among global investors as FDI inflow rise more than 10 per cent year-on-year to reach $40 billion in the first six months of 2020-21. FPI inflows also reflect the same sentiment reaching a historic high of $8.5 billion in November.

Consequently, and on the back of continued contraction in imports, forex reserves continue to scale new highs to reach $575 billion on November 20 extending import coverage to now more than 16 months.

The accumulation of reserves keeps the rupee strong in the range of 73.8-74.7 INR/$ in November with RBI guiding it to its market-determined level. The investment of reserves continues to be guided by concerns of safety, liquidity and returns in that order, as per the Reserve Management Policy of RBI, the report said.