India's economic growth is expected to be higher than the pre-COVID19 level
After a long time, Chief Economic Advisor Krishnamurthy Subramanian boosted the nation’s confidence asserting that the Indian economy is poised to grow as macro-economic fundamentals are strong. The CEA expects a double-digit growth which is reassuring for a nation that has stagnated for almost 18 months on a decelerated growth during the previous two years. Any positive growth can boost business confidence and create a favourable political atmosphere. The Economic Survey estimated a growth of 11 per cent and the budget, 10.5 percent. UN ESCAP predicts a troubled ‘K’ shape recovery. The latest RBI Monetary Policy puts it at 9.5 percent. And the first quarter recovery is stated to be 21.4 percent, an improvement over the forecast made in June of over 18.5 percent. The CEA, however, is modest and says that the growth will be higher than pre-Covid-19 level and possibly “the budget and Economic Survey predictions should be achieved”. The first sign of hope is in the eight core sectors continuing to expand at the rate of 9.4 percent. What more, it was achieved during the intense second wave of the pandemic. The recovery is “V”-shaped, Subramanian says and would continue to be so. He revels on the 49.6 per cent year-on-year growth of the manufacturing sector compared with a 36 per cent contraction last year. Construction grew at 68.3 per cent, the farm sector did better in Aril-June with four percent growth. Subramanian does not disagree with the presence of some hiccups but the 9.4 per cent recovery of coal, crude oil, natural gas, petroleum and refinery products, fertilisers, steel, cementand electricity is far better than the contraction 7.6 per cent in June 2020. The core sectors have maintained the growth for the fifth consecutive month.
However, there is an overall financial crunch and the budget deficit at the end of July was Rs 3.2 lakh crore - 21.3 per cent of the full year target. The GST and other revenue realizations are lower. Personal citizen economy is still not in a happy state with loss of jobs, wages and salary cuts. This also affects purchasing capacity, a necessity for increasing market activities. The private equity and venture capital (PE-VC) deals have tapered in early August raising questions on the nature and quality of investments. Despite optimism, investors are still shy of entering into dealsbecause of cash flow problems. Investment flows depend on how the line-up IPOs performed. The liquidity has not hit its peak yet. There are more offers for sale and the buyers are not revving up to the offers. Another not so good indicator is the diesel sales. It has recorded the sharpest fall in monthly sales since May, ascribed to monsoon conditions having majorly hit demand from the farm, trucking and construction sectors. The UPI transaction value officially is showing improvement but during June to August it has decelerated. The growth rate of transaction value also moderated. Overall manufacturing activities are hit by PMI that hovers around 52.3 in August. Global and Asian trends are yet not positive. Overall, the Asian economy sees corporate profits declining, falling sales of cars in China and Toyota cutting September production. Factory activity in the Asia Pacific contracted sharply in July. There are signals of slowing down in southeast Asia and Pacific. Asia’s largest firms are likely to post profit decline of 6.2 per cent, according to a calculation of Refinitiv Elkon. In such a scenario, the CEA’s statement keeps hopes alive for Indian economy. The market would like to see Subramanian’s prediction coming true despite all odds. Would it happen?
(The writer is a senior journalist. The views expressed are personal.)
