The Department of Economic Affairs India has released a monthly economic report for April-June quarter (Q1) FY 2021-2022. Despite a more brutal second wave India sees resilient v-shaped recovery. Having posted an almost 180 degree turn around from a sharp contraction in Q1 of FY 2020-21, to recover more than 90 per cent of the pre-pandemic Q1 output of 2019-20, the V-shaped economic recovery remains intact! The momentum of India’s economic recovery witnessed since second half of FY 2020-21 did get disrupted by the second wave. However, the rapid surge in vaccination coverage from 6.4 per cent of the adult population with at least first dose in Q4 of 2020-21 to 31.9 per cent in Q1 of 2021-22 contained the sequential decline in output. Vaccination coverage now stands at more than 60 per cent of the adult population as on 8th September 2021.
India’s Agriculture Sector Recovered 95% of pre-pandemic levels
Agriculture sector continues to grow strong. The sharp rebound in manufacturing and construction sectors places them firmly as growth drivers demonstrating the structural strengthening of the Indian economy. While revival in contact-intensive services sector remains gradual, it is poised to gain pace on the back of rapid inoculation and Government’s targeted relief measures for the stressed sectors. The sharp rise in India’s PMI Services in August to reach 18-month high of 56.7 shows the revival gaining momentum. Government’s policy thrust on quickening virtuous cycle of growth via capex and infrastructure spending has increased capital formation in the economy lifting the investment to GDP ratio to about 32 per cent in Q4: FY 2020-21.
The broad-based and swift recovery of both demand and supply side components bears testimony to India’s strong macroeconomic fundamentals, far stronger amid a once-in-a- century crisis than in 2008-09, when Global Financial Crisis (GFC) had triggered the great global recession.
Going forward, agriculture sector continues to offer comfortable prospects with Kharif sowing at 101 per cent of normal levels as on 3rd September, despite a 9 per cent deficient monsoon so far in the year. Record-high paddy procurement and increasing tractor sales augur well for strengthened rural demand in the coming months. Industry is steadily gaining lost ground with June’s IIP witnessing a broad-based growth, having recovered close to 95 per cent of pre-pandemic levels of June 2019. More recently, eight-core industries index for July 2021 rose by 9.4 per cent YoY with all sectors except crude oil and refinery products surpassing pre-pandemic levels. The fast-paced economic recovery is further evident in growth of power consumption, rail freight, highway toll collections, e-way bills, digital transactions, air passenger traffic and robust GST collections. India’s PMI Composite index including both manufacturing and services is comfortably placed at 55.4, signalling commencement of economic expansion.
India’s Financial Sector Economic Recovery
Financial sector remained accommodative in August with systemic liquidity in surplus. Currency in circulation grew at the lowest pace of growth since November 2017, signalling a visible departure from the pandemic-induced increase in demand for precautionary savings. Exuberant domestic equity markets reflected confidence in India’s fundamentals, with BSE Sensex and Nifty 50 scaling record highs near month-end further aided by buoyant growth in profitability of listed companies, global fund inflows and enhanced participation of retail investors. Guided by two G-SAP auctions in August, G-sec yields stabilized at 6.22 per cent at end-August amid easing of crude oil prices and lower inflation prints for July.
Banking Sector Growing Trends 6.55% YOY
Bank credit growth reflected encouraging trends this August, ascending to 6.55 per cent (YoY) in the fortnight ending August 13, 2021 compared to 5.52 per cent in the corresponding period of previous year. Credit offtake by agriculture and allied activities, micro, small and medium industries continued to perform well in July, demonstrating positive effects of the implementation of AatmaNirbhar Bharat (AB) package.
Business Sector Financial Report
Marking restoration of supply chains, CPI-Combined inflation retreated to target band in July 2021 at 5.59 per cent after two months of staying north of 6 per cent. WPI inflation moderated to 11.16 per cent in July 2021 with sequential decline in primary articles and fuel & power inflation. Softening of inflationary pressures to within the envisaged trajectory and encouraging trends in credit growth bode well for revival of consumer and business sentiments in the economy. Sustained uptick in UPI transactions corroborates an upbeat consumer sentiment with resumption of activity levels and rising popularity of digital modes of payment, also reflected in NEFT and RTGS transactions since June 2021.
With steady rise in average daily vaccination doses from 42.0 lakh in July to 56.6 lakh in August, more than 60 per cent of adult population have received at least one dose, while more than 19 per cent have received both doses. However, the looming fear around Delta variant of COVID-19 has once again cast a shadow necessitating sustained precautions against COVID-19 with greater focus on testing, tracking and adopting COVID-19 appropriate behaviour. Kerala remains a concern accounting for around 60 per cent of daily new cases in the country and reporting the highest daily deaths across all states. While experts have cautioned against a potential third wave in the oncoming festive months, pandemic control and management needs to be strengthened with Maharashtra and Kerala presently accounting for 70 per cent of the active cases in the country.