Call it economic recovery or not, most indicators are trending upwards

The government's critics and loyalists are both wrong in the way they view economic data.

The RBI’s all-too-frequent monetary policy reviews attract a lot of attention. The next one is due on October 6. The bonderatti are agog.

Usually, however, the people who focus on them forget that central banking is as much a political activity as an economic one. 

That’s why the word ‘recovery’ in the economic context has taken on a political complexion lately, mostly because people treat it as a stock concept while it is, in fact, a flow. 

A recovery is an act in motion. While it is in progress, its existence cannot be denied just because it has not been completed yet. 

On the flip side, the existence of a recovery cannot be grounds to declare its completion.

In other words, critics and loyalists of this government are both wrong in the way they are viewing economic data. In the process they have also ruined a perfectly serviceable word. 

Let us, thus, look at the latest macroeconomic data without the loaded value judgement of a ‘recovery’.

Start with the all-important phenomenon of inflation. WPI inflation rose in August 2021, the latest month for which there is data, to 11.4 percent, from 11.2 percent the previous month. 

While that increase may seem marginal, it’s important to note that average WPI inflation in the last five months has been 11.6%. 

Retail inflation, at 5.3% in August, has not only spent two consecutive months below the RBI’s upper tolerance limit of 6%, but has also come down to below the level it was at before the second wave struck.

Given the sheer amount of liquidity made available by the RBI over the last year and more, the fact that retail inflation is low while the Sensex has been scaling new heights suggests that investment activity so far has been restricted to equities rather than factories and that demand is still subdued.

The growth in bank credit, at 6.67 percent in August 2021, is the highest in 16 months. Non-food credit growth is at 6.7 percent. 

A large part of this has been driven by the Emergency Credit Line Guarantee Scheme, which has encouraged banks to lend without having to really fear about repayment, since loans under the scheme are 100 percent guaranteed by the government.

The fiscal deficit numbers paint a clear picture of the strain Covid has placed on government finances. 

At Rs 4,68,009 crore, the fiscal deficit is only 31.1 percent of the full year target. That is, after five months, the fiscal deficit is less than a third of the full-year target. 

That’s not bad. At this time last year, the fiscal deficit was 109.3 percent of the full year target, a reflection of the simultaneous increase in government expenditure and the decrease in tax revenue.

Exports have been an outlier in that, not only have they reached pre-pandemic levels, but they have exceeded them. In fact, India’s exports have never looked so good. Hitting $33.4 billion in September 2021, this is the first time that merchandise exports have crossed $100 billion in any one quarter. 

And that’s not counting services exports, which have been seeing double-digit growth this entire financial year.

GST revenue came in at Rs 1.17 lakh crore in September 2021. That’s the third consecutive month it has been higher than Rs 1.1 lakh crore. 

In fact, GST collections have been higher than Rs 1 lakh crore in 11 of the last 12 months. The average collection in the last 12 months have been Rs 1.13 lakh crore.

Whether you want to call it a recovery or not, the fact is that most of the macro indicators are trending upwards, at least till now.