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Stage set for India's investment cycle to kick-start, says FinMin

For the first time since January this year, households expected inflation to fall, according to the RBI survey

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Finance Ministry | Investments | Indian Economy

Indivjal Dhasmana  |  New Delhi 

Illustration
Illustration: Ajay Mohanty

Buoyed by the rapid pace of Covid vaccinations, the on Wednesday gave a bullish outlook on the economy. Armed with necessary macro and micro growth drivers, the stage is set for India’s investment cycle to kick-start, it said, adding this would catalyse its recovery towards becoming the fastest-growing large economy in the world.

In its monthly economic review for October, the Department of Economic Affairs (DEA) under the ministry, said further demand stimulation, fuller restoration of supply chains, narrowing of demand-supply mismatches, and greater employment generation are in the offing.

Gross fixed capital formation (GFCF) rose 55 per cent in the first quarter (Q1) of 2021-22 (FY22) on a low base of 46.6 per cent contraction a year ago, giving an overestimated figure. When compared to the pre-Covid period of Q1 of 2019-20, GFCF was down 9.3 per cent in Q1FY22. The investment cycle, particularly from the private sector, is yet to pick up.

However, the department sounded a note of caution. It said core retail — which is the rate of price rise in non-food and non-oil items — remains sticky at 5.9 per cent in September. It attributed core to the hardening of input costs and the ripple effect of escalating global oil prices.

“Yet, these concerns have not embedded themselves in self-fulfilling inflationary expectations as seen in the Reserve Bank of India’s (RBI’s) survey,” the DEA observed.

For the first time since January this year, households expected inflation to fall, according to the RBI survey. After increasing for three successive rounds, the median inflation expectation of households moderated 50 basis points (bps) to 10.8 per cent for the three months ahead and 60 bps to 10.9 per cent for the year ahead in September.

In its October review, the department expressed hope that the recent cut in central excise duty on petrol and diesel would soften inflationary pressures exerted by rising crude oil prices.

The DEA quoted figures given by the Confederation of All India Traders to say that economic recovery gathered steam in the festival season, recording decade-high Diwali sales of Rs 1.3 trillion.

The department attributed economic recovery to the AatmaNirbhar Bharat Abhiyan encapsulating major structural reforms. It said it has signalled business opportunities and expanded spending channels.

Citing the World Trade Organization’s (WTO’s) October forecast on global trade prospects, the DEA said this augurs well for India’s export performance in the near future, lending credence to the International Monetary Fund (IMF) projecting India to become the fastest-growing economy, among major countries, in the current and subsequent year.

In its latest update of its flagship publication — World Economic Outlook — the IMF pegged India's economic growth at 9.5 per cent for the current fiscal year and 8.5 per cent for the next year.

The WTO on Monday upgraded its forecast for global merchandise trade volume to an increase of 10.8 per cent in 2021, from the 8 per cent increase projected in March this year.

The department rolled out statistics on core sector growth, Index of Industrial Production, demand, bank credit, bond yields, goods and services tax, exports, rabi sowing, outbound shipments of farm produce, rural demand as indicated by tractor, and two-wheeler sales to substantiate its expectations that economic recovery is underway.

The department said all states have covered more than 50 per cent of their respective adult population with the first dose of the Covid vaccine. As many as 11 states and Union Territories (UTs) have vaccinated the entire adult population with at least one dose.

While Kerala still has the highest number of active and new cases, it has inoculated the entire adult population with at least one dose. The state accounted for 47 per cent of total active cases.

More than 38 per cent of adults in India have been fully vaccinated, it said, adding Sikkim is leading the vaccination drive and has fully vaccinated almost its entire adult population.

Ladakh and Goa have fully vaccinated more than three-fourths of their respective adult population. As many as 16 states and UTs have fully vaccinated more than 50 per cent of adults. The other states that have fully vaccinated around 25 per cent of adults are Uttar Pradesh, Bihar, Jharkhand, and Punjab.

Overall, 80 per cent of the active cases are in Kerala, Maharashtra, Tamil Nadu (TN), Mizoram, and Karnataka. As many as 20 states and UTs account for only 1 per cent of active cases.

A similar pattern can be seen in the average number of deaths in October, with Kerala accounting for 65 per cent of total deaths in the country, followed by Maharashtra, TN, and West Bengal. Mizoram has the maximum number of daily deaths, compared in terms of per 100,000 population. However, 25 states and UTs account for less than 3 per cent of deaths in the month.

READING THE ECONOMIC TEA LEAVES

  • DEA optimistic about picking up of due to vaccinations, rising demand
  • Expects greater employment generation
  • Rural demand up, as substantiated by tractor and two-wheeler sales
  • Says Kerala accounts for 47% of total active Covid cases
  • However, it has inoculated the entire adult population with at least one dose
  • Sees sticky core retail inflation as worrisome
  • Expects spillover of excise duty cuts on petrol, diesel to cool it

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First Published: Wed, November 10 2021. 20:57 IST
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