A Finance Ministry report on Wednesday expressed cautious optimism on India’s growth story. It expects the economy to regain pre-Covid levels by the end of the current fiscal. However, it does caution about a possible second wave of the pandemic which could affect recovery.

The report, prepared by the Economic Affairs Department (DEA), also indicated expenditure to go up as there is improvement in revenue especially that from the Goods and Services Tax (GST).

“India stands poised to recover at a fast pace and reach pre-Covid levels by the end of the year — barring the incidence of a second wave that may be triggered by the fatigue with social distancing,” the report said.

It acknowledged that continuous improvement in forward-looking RBI indices of consumption and business sentiment for the next year augurs hope of a strong economic rebound. “This is also corroborated by IMF’s October 2020 projection of 8.8 per cent real GDP growth of India in FY2021-22, the highest globally,” it said.

The report has come after most high-frequency economic indicators, barring foreign trade, showed an encouraging sign. Purchasing Managers’ Index (PMI) for services, as released on Wednesday, crossed 50 reading for the first time after February and reached 54.1 in October. Manufacturing PMI clocked a decade-high reading with 58.9. “With the onset of the festive season, overall consumption is expected to see further uptick in the coming months enhancing the prospects of faster economic normalisation,” the report said.

It noted moderation of export in October, primarily driven by weak oil exports, but this has not affected cargo movement related to various products. The expected current account surplus during the year is likely to provide a cushion to increased spending in the economy. With net FPI inflows staying robust in October, the rupee stood strong at about 73 to the USD on the back of forex reserves now comfortably settled in excess of half a trillion dollars, it said.

Expenditure

The report highlighted disturbance in the fiscal space due to shortfall in revenue collection. It may be noted that in April, the government categorised all Ministries and Departments into three categories from a cash management point of view. No expenditure was capping proposed for the first category (which includes health and agriculture beside others), but it placed a quarterly limit of 20 per cent and 15 per cent for the other two categories, respectively. All these are applicable till December 31.

Now, with some improvement, there are indications that there will be some relaxation during the fourth quarter. “Given that there are indications of India’s GDP growth in the current year being higher than currently projected by various agencies, the fiscal space is set to widen to accommodate other priorities of the government,” it said, while noting that GST collection was over ₹1-lakh crore in October.

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