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Finance ministry pins hopes on festive season for growth momentum

The Finance Ministry, however, cautioned that the spread of Covid-19 and an increase in precautionary personal savings posed risks to the prospects of economic expansion.

Topics
Finance Ministry | Economic recovery | Indian Economy

Shrimi Choudhary  |  New Delhi 

gdp, growth, forecast, profit, economy, bank
An increase in global demand had led to an expansion of India’s exports at 5.3 per cent in September on a year-on-year basis.

The on Sunday said the festive months were expected to further boost economic growth after high frequency indicators showed improvement. It, however, cautioned that the spread of Covid-19 and an increase in precautionary personal savings posed risks to the prospects of economic expansion.

The Department of Economic Affairs in its Monthly Economic Review for September said critical reforms undertaken by the government would put India on a strong and sustainable growth path in the long run.

Amid criticism over the strained relations between the Centre and states, the report pointed out that the Union government had lent support to the states and did not disrupt tax devolution despite the pandemic adversely affecting its receipts.

On high frequency data, it said an increase in global demand had led to an expansion of India’s exports at 5.3 per cent in September on a year-on-year basis.

Further, at an 8-year high of 56.8 in September 2020, India’s manufacturing Purchasing Managers’ Index augurs well for economic expansion in the coming months. GST collections also reached Rs 95,480 crore in September, going past the previous year's level by 3.9 per cent for the first time this fiscal year.

The recovery in rail freight enabled revenue earnings to clock a positive year- on-year growth for the first time since March in the months of August and early September. Besides, easing of restrictions on inter-state movement, quarantine policy and unlocking also helped, the report pointed out.

Another positive is that cargo traffic volumes continued to inch up towards previous year's levels reporting a lower contraction in August. With domestic aviation traffic also increasing, the upcoming festive months are expected to further boost growth.

In the financial account, net foreign direct investment (FDI) recorded outflows of $0.4 billion against inflows of $14.0 billion in Q1 of 2019-20. Net foreign portfolio investment (FPI) was $0.6 billion as compared with $4.8 billion in Q1FY20 as net purchases in the equity market were offset by net sales in the debt segment. “India garnered the highest foreign portfolio inflows in the first half of 2020 compared to its emerging market peers, '' the ministry said.

While July and August witnessed record capital raising by leading domestic firms and low global interest rates, net FPI flows moderated to record an outflow of $0.33 billion in September owing to uncertainty around the pace of and rising Covid-19 cases in Europe and other countries including India. Recent outflows in equities signal heightened volatility in global markets.

The report said that the pandemic was far from over, but the decline in positive cases at the all-India level set the stage to further push up the frontiers of It suggested that all stakeholders get into the act as remaining restrictions on access and mobility are further eased. More than “social distancing” it is “self-protection with due precautions” that better fits into the context of “Jaan Bhi Aur Jahaan Bhi”, the report noted.

On the negative side, it said the rising precautionary savings were limiting growth in personal consumption and acceleration in activity levels.

The concerns remained on India's current account balance, which recorded a surplus of $19.8 billion (3.9 per cent of GDP) in Q1FY21 on account of a sharp contraction in the trade deficit, driven by a steeper decline in merchandise imports relative to exports on a year-on year basis, it said .

On reforms undertaken by the government, the report said,"The enabling policy environment and initiatives taken by all stakeholders to seize the available opportunities will actualise the growth potential of the

It cited S&P Global Ratings to buttress its claims. It said the rating agency had retained India’s investment grade (BBB-) credit rating with a stable outlook as it expected the country’s economy and fiscal position to stabilise and start recovering from 2021 onwards. India’s probable growth path is visible in this assessment.

As on September 25, India’s foreign exchange reserves stood at $ 542.02 billion, equivalent to more than 13 months of imports and offer a comfortable buffer to provide for a surge in imports following acceleration in the pace of economic activity.

High accumulation of reserves in part is explained by robust net FPI inflows. Exports have rebounded and clocked positive growth in September for the first time since March and trade deficit narrowed with exports recovering faster than imports.

As intermittent lockdowns cease, containment zones become fewer and smooth operation of supply chains resumes, a fall in retail inflation may boost personal consumption expenditure. Growth in overall credit to the non-agricultural sector is expected to be higher in the coming months on the back of the uptick in the credit growth to MSMEs and trade services.

The Centre continues to lend unflinching support to state governments towards faster economic revival. Despite the Covid-19 pandemic and the consequent fall in gross tax revenue, the tax devolution to states has happened without disruption to stand at Rs 2.17 trillion in the first five months of this fiscal, less by only Rs. 37,629 trillion than the previous year. In addition, the Centre has already allowed an additional borrowing limit of up to 2 per cent of GSDP to states for FY21 to cope with the pandemic induced requirements of higher expenditure.

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First Published: Sun, October 04 2020. 15:36 IST
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