According to a recent report published by the central bank, the country’s gross domestic product (GDP) is not far from attaining positive growth. It observed that the economy will experience a V-shaped recovery in 2021, where V will stand for vaccine.
India has already started one of the world’s biggest vaccination drives against Covid-19. It plans to inoculate about 300 million people on priority by year end.
RBI’s report also stated that barring another wave of Covid, the worst is over for India. Hence, policymakers might soon have more room to support the recovery process.
State of Indian economy
The Covid-19 pandemic has been a human and economic catastrophe for India. Almost one-fourth of the country’s economic activity was wiped out due to fall in domestic demand in wake of the strict nationwide lockdowns to curb Covid infections.
India’s GDP dipped a historic 23.9 per cent in the first quarter (Q1) of 2020. The contraction narrowed down to 7.5 per cent in the second quarter (Q2).
However, so far India seems to have managed the Covid crisis pretty well.
The first advance estimates of national income for 2020-21 released by the National Statistical Office (NSO) estimated real GDP growth in 2020-21 to be at (-) 7.7 per cent as against (-) 10.3 per cent projected by the International Monetary Fund (IMF) in October 2020. In December 2020, RBI’s monetary policy committee (MPC) had projected GDP to be (-) 7.5 per cent.
Rise in government expenditure
Total expenditure of the government surged 48.3 per cent on year-on-year (y-o-y) basis in the month of November. While, capital expenditure shrugged off a three-month contraction and expanded 248.5 per cent.
This was mainly due to the introduction of the Atmanirbhar Bharat package.
Revival of imports, exports
After contracting for 9 consecutive months, merchandise imports finally experienced a growth of 7.6 per cent (y-o-y) in December 2020.
The revival was led by gold, electronic goods and vegetable oils. Rising imports of pearls and precious stones, machinery, electronic goods and textiles reflect the revival of domestic activity as they are of the nature of intermediate goods in supply chains. This also augurs well for exports going forward.
This suggests that moribund absorptive capacity of the economy is coming back to life, backed by domestic demand.
India’s merchandise exports have reached pre-Covid levels and exhibited a growth of 0.1 per cent in December 2020. Non-oil exports actually expanded by 5.6 per cent, marking the fourth consecutive month of positive growth.
Financial markets surge
The Covid-19 pandemic dragged the sensex to record low in late March 2020. But, it staged a strong recovery from the lows. Both the BSE and NSE indices finally wrapped up 2020 on a bullish note, with sensex gaining nearly 16 per cent.
The BSE index jumped almost 91 per cent from its record low of 25,881 to breach the 50,000-mark in just over 10 months.
During December 2020, the listing of two initial public offerings (IPOs), aggregating Rs 1,351 crore, took the total resource mobilisation through main board IPOs to Rs 15,971 crore during 2020-21 (up to December 2020), marking a sharp rebound from Rs 10,487 crore in the corresponding period of the previous year.
Beginning with the first IPO issued in July 2020, healthcare and finance sector companies have garnered the maximum amount of resources among all initial offerings.
Although industrial output remains volatile, contracting by 1.9 per cent in November 2020 after a record expansion in October by 4.2 per cent, industrial activity is finally turning around.
The headline purchasing managers’ index (PMI) manufacturing expanded in December 2020 to 56.4, a tick higher than November’s reading of 56.3. Both new orders and output continued to grow strongly.
Record GST collections
The gross Goods and Services Tax (GST) collections touched a record high of over Rs 1.15 lakh crore in December — the highest since the implementation of the regime. The collection indicates that the economy continues to show signs of recovery after a stringent lockdown last year.
With this, the GST has also now crossed the psychological Rs 1 lakh crore-mark for the third straight month in the current fiscal.
Fall in government revenue
Even though GST collections have been at record levels during the year, the pandemic has inflicted a ‘scissor effect’ on government revenues.
On the one hand, it stretched expenditure on account of fiscal support to the economy that was completely unanticipated at the time of drawing up Budgets for 2020-21.
On the other, there was contraction in revenues as activity went into complete standstill with lockdowns and other containment measures.
As a result, the general government gross fiscal deficit (GFD) rose to 14.5 per cent in the first half of 2020-21.