India sees faster growth recovery

Dubai - Indian economic growth jumping back to positive territory can be attributed to ample of global liquidity support in form of portfolio/FII flows.

by

Sandhya D'Mello

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The central bank has stated that more evidence has been turned in to show that the Indian economy is pulling out of Covid-19’s challenging times. — Reuters
The central bank has stated that more evidence has been turned in to show that the Indian economy is pulling out of Covid-19’s challenging times. — Reuters

Published: Fri 25 Dec 2020, 11:09 PM

The Indian economy is certainly ending the year 2020 with some positive cues as it pulls out of Covid-19’s deep abyss at a faster pace than most predictions, the Reserve Bank of India said in its monthly bulletin for December on Thursday.

“The bounce back of the Indian economy in the last few months has surpassed all expectations from the gloom and doom predictions early this year,” said Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services. “Most core economic sectors of the economy have shown significant improvement in growth and there is a renewed confidence that 2021 will restore the economy to its normal levels. The ensuing budget is also expected to bring in another dose of proactive stimulus to propel growth and put more liquidity in the hands of industry and the consumers.”


The central bank has stated that more evidence has been turned in to show that the Indian economy is pulling out of Covid-19’s challenging times and is reflating at a pace that beats most predictions. Although headwinds blow, steadfast efforts by all stakeholders could put India on a faster growth trajectory.

The pandemic-imposed retrenchment in the first quarter of 2021 turned out to be much shallower in the second quarter and the economy is reflating at a pace that beats most predictions. The update of the Economic Activity Index (EAI) in the now casting assessment indicates that the real GDP growth is expected to break out into positive territory in the third quarter — albeit, at a slender 0.1 per cent.


“The fourth bi-monthly resolution of the Monetary Policy Committee (MPC) did maintain the status quo on the policy rate and stance; but a powerful message was conveyed: growth projections — the intermediate target under a flexible inflation targeting framework and the most potent communication tool — were revised upwards by 200 basis points from October and if they hold, the Indian economy will clock a growth rate of 14.2 per cent in the first half of 2021-22 on top of 0.4 per cent in the second half of 2020-21.”

According to the RBI bulletin, two important forces are ‘conspiring to bless’ this turning of the page on the virus. “First, India is bending the Covid infection curve: since mid-September, barring localised surges, infections are slanting downwards week after week, and the recovery rate is nudging 95 per cent.”

A battery of vaccine candidates has successfully hit not only trial status but also suitability for transportation, trials, usage in India, it said.

“Second, it is now getting clearer that there is a system to the fiscal stimulus, a ‘method’ if you will. Starting out with liquidity or guarantee and cash or kind support to the economy — the need of the hour when the pandemic struck and displaced crores from their lives and livelihoods — it is transiting in a calibrated fashion to supporting investment and consumption demand,” the bulletin said.

Bal Krishen, chairman of Century Financial, said: “During the Covid-19 pandemic peak, Indian auto sector suffered daily losses to the tune of Rs23 billion per day with more than 3.50 lakh jobs lost in the sector alone. This was primarily driven by various lock down restrictions and work from home orders which saw lesser traffic on roads. Even the people who had thought of buying a new car postponed their plans. This affected the sector in an extremely negative manner. Currently, with the Indian economy now almost open and daily lives of people getting back to normal, this sector will likely lead the recovery. Similar is the case for capital goods sector which is expected to attract new flows. Various measures and steps taken by the Indian government to make India self dependent along with huge fiscal stimulus measures will likely cause renewed interest in such core sectors. Various other steps taken by the government to reduce the overall leverage in system will surely show its effects in the longer run.”

Sectors such as auto and capital goods, which had been hit hard by the lockdown are expecting a turnaround in forward earnings. Healthcare, information technology (IT) and fast moving consumer goods (FMCG) companies are sighting stronger earnings outlook. Moreover, intrinsic strength in the manufacturing and services sectors is being built as debt servicing capacity is getting reinforced and leverage is being brought down. India’s farm sector is also forging ahead, backed by path-breaking marketing reforms.

Krishen added: “The Indian economic growth jumping back to positive territory can be attributed to factors like: flattening of Covid-19 curve; normalisation of economy post the lockdown restrictions; various fiscal measures announced by Indian government; prudent monetary policy measures by RBI; and ample global liquidity support in form of portfolio/FII flows.”

The fiscal measures have been sequenced in a designed shift in focus from consumption expenditure in Pradhan Mantri Garib Kalyan Package (PMGKP) to investment expenditure in Aatmanirbhar 2.0 and 3.0. On the whole, the above-the-line fiscal stimulus will likely boost growth by close to two per cent of GDP in 2020-21.

— with inputs from IANS, sandhya@khaleejtimes.com



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