“This V-shaped recovery, evident at the half-way stage of 2020-21, reflects the resilience and robustness of the Indian economy.The finance ministry on Thursday exuded “cautious optimism” about a rebound in as early as the third quarter and stressed that the economy was witnessing a V-shaped recovery, with a 23% quarter-on-quarter jump in gross domestic product (GDP) in the three months through September.
The assertion comes even as latest data show some of the high-frequency indicators, including manufacturing and services PMI, exports, fuel sales, auto sales and electricity consumption have somewhat lost momentum sequentially through November, stoking doubts about the strength of the recovery.
After a record slide of 23.9% in the June quarter, the year-on-year contraction in real GDP narrowed to 7.5% in the second quarter of this fiscal. This represents a quarter-on-quarter surge in GDP growth of 23%, the ministry said in a report.
“This V-shaped recovery, evident at the half-way stage of 2020-21, reflects the resilience and robustness of the Indian economy. The fundamentals of the economy remain strong as gradual scaling back of lockdowns, along with the astute support of Atmanirbhar Bharat Mission has placed the economy firmly on the path of recovery,” the report said.
Moving deeper into the third quarter, there is “a cautious optimism that global economic uncertainty does not mirror itself in India notwithstanding moderation of a few high frequency indicators late in the month of November”, the report said.
However, it also said any spread of a second wave of Covid-19 remains the downside risk. “However, there is a growing cautious optimism that the steep plunges of April-June quarter of 2020 may not resurface with significant progress in vaccines and contact intensive sectors increasingly adapting to a virtual normal,” it said. “The need of the hour is to follow covid-appropriate behaviour and earnest observation of laid down standard operating guidelines (SOPs) till a vaccine is approved and a large section is inoculated.”
Overall increase in rabi coverage with adequately filled irrigation reservoirs bodes well for growth of agricultural output in 2020-21. The additional allocation of Rs 10,000 crore, announced recently as part of the Pradhan Mantri Garib Kalyan Rozgar Yojana, would give a further boost to job creation in the rural sector and supplement rural incomes, the report said.
The farm and allied sector has been a key driver of GDP in the aftermath of the pandemic, having risen by 3.4%, y-o-y, in the July-September period, when the overall real GDP shrank by 7.5%. In an indication that the government is willing to boost productive spending, the report said, higher market borrowing so far this fiscal is “an ample demonstration of government’s commitment to provide sustained fiscal stimulus through maintaining high public expenditure levels in the economy”.
“The timely announcement of the third tranche of the Atmanirbhar Bharat package on the eve of Diwali is the most recent demonstration of the commitment.”
As on November 20 this fiscal, the central government’s gross market borrowing touched Rs 9.05 lakh crore, up 68% from a year before, the report said. Even state governments were forced to turn to the market; their borrowing surged by a half, year on year, to Rs 4.73 lakh crore until November 20.
Elevated liquidity continues to ease G-sec yields although corporate bond yields have witnessed some stiffening, resulting in a decline in the number of privately-placed issues between August and October. But enhanced liquidity has improved monetary policy transmission with continuous decline in MCLR, savings and term deposit rates.
Consequently, effective weighted average yield of commercial papers and rates of certificates of deposits have fallen below the repo rate of 4% and now closing on to the reverse repo rate of 3.35% as well. However, overall growth in bank credit remains sluggish, although the Rs 3-lakh-crore Emergency Credit Line Guarantee Scheme (ECLGS) continues to support credit disbursement to MSMEs.
The recent extension of the ECLGS to 26 stressed sectors identified by the Kamath Committee as well as healthcare may eventually go on to drive the overall growth of bank credit, the report said.
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