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  • Raghav Sand

IndEcon June 2021

In times of uncertainty, if you cannot measure the health of an economy, you should at least try to be directionally correct. Numbers are important to measure the overall situation in the economy, but the reality on ground can be far more problematic. Lockdowns imposed to check the second wave of Covid-19 have adversely impacted discretionary spending and some of the essentials also registered contraction in demand. There was no instruction manual for how to deal with this economic downturn and understandably so, a number of policy measures announced till date are nothing more than an exercise in trial and error.

The Union Government has been overly cautious about fiscal deficit and inflation. Economists are urging the Ministry of Finance to loosen the purse strings. Even if the policy makers look at the current economic situation from different angles, targeted stimulus packages are the way forward to pull the economy out of recessionary quicksand. On one hand, we have rising fuel prices and on the other hand benchmark stock market index is scaling new highs. Manufacturing sector is heading towards stagnation, while service sector is in contraction. India’s resolve to administer at least one dose of Covid-19 vaccine to 70-per-cent of the adult population by the end of September is an ambitious target.

Past performance is not an indicator for future returns. This disclaimer, used primarily by mutual funds is at par with text written in holy scriptures. Either good or bad, no situation is certain to remain same forever. When we have data, we can make varied projections about the future, ranging from optimistic to pessimistic. In case you missed it, the gamification of economy makes everything look like a ‘you miss I hit’ contest.

Manufacturing and Services Sector

May registered weakest increases in sales and output in the past ten months. As a consequence, companies had to resort to job shedding. Production in terms of volume rose modestly. Inability to secure raw materials due to lockdown made matters worse. Lengthy supplier delivery times for the third straight month has created an artificial slowdown in manufacturing sector.

Indian service providers struggled in May, with the escalation of the COVID-19 crisis. Optimism slipped to a nine-month low as firms became increasingly worried about growth prospects. Input cost cooled down, but remained above historical comfort level. As a result, private sector jobs fell for the fifteenth month in succession.

Good and Services Tax Collection

The gross GST revenue collected in the month of May 2021 was ₹1,02,709 crore. The revenues for the month of May 2021 are 65% higher than the GST revenues in the same month last year. GST revenues have crossed ₹ 1 lakh crore mark for the eighth month in a row. This is despite the fact that most of the States had been under strict lockdown due to the pandemic. In addition to robust GST collection, the national exchequer is gaining from high rate of excise duty on fuel.

Source: Ministry of Finance

Automobile Sector in Slow Lane

Among other things, vehicle sales have a direct relationship with the economic situation and how people project the next 6-12 months. Two-wheeler sales in May halved when compared with the corresponding figures of April. Three-wheeler and commercial vehicle segment continue its downward spiral, registering a fall of 76 percent and 66 percent, respectively.

Some automobile manufacturers have announced financial help for their channel partners, while absence of concrete steps from RBI can further increase the pain of automobile sector. Only sliver of hope for the automobile sector in particular and the economy in general is the timely onset of monsoon across India. Delay in implementation of vehicle scrappage policy is making matters worse.

Runaway Inflation

The National Statistical Office, Ministry of Statistics and Programme Implementation (MoSPI) released All India Consumer Price Index (CPI) and corresponding Consumer Food Price Index (CFPI) for the month of May (Provisional) today. All the six sub-groups registered an increase in prices during May.

Source: MoSPI

Food and beverages, which has a 45.86 percent weightage in consumer price indices, saw supply and demand mismatch in the sub-group of oils and fats during May. Urban housing with a weightage of 10.07 per cent witnessed consolidation in May when compared to levels recorded in April. CPI of 6.30 percent is marginally above the upper tolerance limit of RBI and if headline inflation does not ease from its current levels, we can expect a rate cut in the coming months.

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