After a modest, almost-generalised dip in January owing to the third Covid wave, economic activities on an aggregate basis seem to have recovered smartly in early February itself, as the pandemic’s effect quickly abated and turned out to be less severe than in the previous two waves.
However, for the advance estimate of a real gross domestic product (GDP) expansion of 8.8% for 2021-22 to come true, a quick and strong consumption rebound in February-March is imperative. Also required is robust public capital expenditure in the final months of the year: The central and state governments will have to stick to the capex estimates in their Budgets; CPSEs ought to pitch in too.
Absent the prospect of an immediate spurt in private investments, the growth revival can take firm roots in the first half of 2022-23 and beyond only with the aid of an abiding recovery in domestic consumption. Of course, significant help could come from an export boom, which may last for a long period, thanks to the industrial resurgence in advanced economies; only supply-side constraints and another strong Covid wave could impede the pace of shipments.
Even though an incipient recovery in large part of the economy was briefly interrupted by the state-wise restrictions in January, analysts expect 1-2% IIP growth in January 2022 as against a ten-month low of 0.4% in December. This is because several sectors remained less affected by the curbs and the effect of an unfavourable base waned. Robust production of rabi crops could also support the nascent recovery, but if this would spur rural consumption will rely on the efficient use of the Minimum Support Price system to boost farmers’ income.
Indeed there are many lingering threats to the economic revival. Corporate profits, a key driver of the gross value added (GVA) in recent quarters, could see a moderation in Q4, 2021-22 as input costs are skyrocketing. The informal sector, debilitated by the pandemic and several policy steps that hit their business, doesn’t appear to be poised for a meaningful turnaround either.
There is also the uncertainty over how long the Reserve Bank of India (RBI) could keep the key rates at historic low levels and retain its accomodative policy stance, given that elevated global commodity prices could stoke inflation.
Month-on-month pick-ups in inter-state commerce and consumption of fuel and electricity in the first half of February and a sustained impressive growth in non-food credit for a few months through January are among a few sanguine high-frequency indicators.
Generation of the GST e-way blls rose to a daily average of 2.36 million during February 1-13, from 2.22 million seen in January 2022 and the record level of 2.37 million in October 2021. On a y-o-y basis, electricity demand rose to 3% during February 1-15, from 1.1% in January. Sales of petrol and diesel by state refiners have risen in February 1-15, 2022, relative to January 1-15, even as these trailed pre-Covid levels, according to Icra.
In January, performance of many indicators including motorcycle production, airlines’ passenger traffic, electricity generation, GST e-way bills, non-oil exports, cargo traffic at ports and fuel consumption had deteriorated on a year-on-year basis, in comparison to December. The sectors that held up relatively well even in January include coal, steel and railway freight.
Of course, even with the growth seen by the National Statistical Office (NSO) in the first advance estimate, the 2021-22 GDP would be only modestly above (up 1.6%) the level in 2019-20, the year immediately before the pandemic.
The RBI defied the global trend and left the key policy rates unchanged and retained its accommodative policy stance in the latest bi-monthly monetary review. This was even as retail inflation hit the upper band of the RBI’s medium-term target and scaled a 7-month peak of 6.01% in January. The US Federal Reserve had signalled it would start steadily raising interest rates in mid-March but the RBI took comfort from the Monetary Policy Committee’s (MPC) projection that retail inflation would drop to 4.5% in the next fiscal from 5.3% in FY22.
The real GDP needs to grow at 5.6% in the second half of the current fiscal from a year before to realise the 8.8% growth (upon a revised base) projected for 2021-22 in the first advance estimate released by the NSO in January. After the deep contractions in Q1 (-24.4%) and Q2 (-7.4%) of the last fiscal year, GDP witnessed small positive growth rates in Q3 (0.5%) and Q4 (1.3%) of the year.
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