The Indian Premier League 2020

Opinion DC Comment 12 Oct 2020 DC Edit | India' ...

DC Edit | India's economic recovery is contingent on curbing COVID-19

DECCAN CHRONICLE.
Published Oct 12, 2020, 6:36 pm IST
Updated Oct 12, 2020, 6:36 pm IST
A full recovery in the economy, therefore, would be incumbent on how fast the world defeats the coronavirus.
Reserve Bank of India announced a slew of measures to maintain market stability. (PTI Photo)
 Reserve Bank of India announced a slew of measures to maintain market stability. (PTI Photo)

After a six-month-long flow of negative news, the Reserve Bank of India’s economic forecast has offered a glimmer of hope. While the annual economic growth rate would continue to be in the negative territory with an expected contraction of 9.5 per cent, RBI governor Shaktikanta Das said that the Indian economy will post a positive growth of 0.5 per cent in January-March quarter, unless the country witnesses a second wave of Covid-19 cases.

Though a half percentage growth is negligible, it shows that the economy has passed its worst phase. This optimism was also reflected in the manufacturing purchasing managers’ index (PMI) for September 2020, which rose to 56.8 — its highest mark since January 2012 — supported by acceleration in new orders and production. The services PMI too has almost reached the positive territory in September with 49.8, which is shy of 0.2 points. Since PMI records business expectation, it needs to be seen as to which sector would contribute to this growth.

 

Another data point that was not highlighted by the RBI governor is the rise in bank deposits. According to RBI data, banks have seven per cent more deposits in September compared to February. The loan books of the banks have risen merely by two per cent. When seen together, these metrics indicate that people who have surplus money are not confident enough to spend. Job losses and reduction in salary have reduced disposable incomes of lakhs of people and, as a result, taken a toll on consumption.

The central bank’s optimism also betrays the fact that consumer confidence is at an all-time low. According to RBI’s consumer confidence survey, people have curtailed spending and discretionary spending would continue to remain low in the near future. A subdued demand would make businessmen hesitant in expanding their operations.

 

Exports, another key component of the Indian economy, are also languishing at low levels. Given the global economic outlook, Indian exports may not see a major revival unless the country can attract some of companies de-risking their operations from Chinese dependence. This, however, may not happen in the short term, as infrastructure in India remains woefully inadequate.

Public investment, therefore, remains the only way to kick-start the economy. However, the subdued tax collections would make it difficult to shoulder this responsibility. According to RBI, there has been a 23.7 per cent contraction in gross tax collections and a 14.7 per cent plunge in transfer of taxes to states and Union Territories. 

 

A full recovery in the economy, therefore, would be incumbent on how fast the world defeats the coronavirus. Until then, the economic activity will not reach the pre-pandemic levels and the bullishness of stock markets would not reflect the real state of the economy.

...




ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT