India’s green shoots of recovery still in fragile state, say experts

Some high frequency indicators now point to green shoots of economic revival.
For representational purpose. (Photo | Pixabay)
For representational purpose. (Photo | Pixabay)

NEW DELHI: Hirak Mandal, 42, a master mason-turned small time contractor has managed to find work for himself and his small team of construction workers at a flyover site on the outskirts of Delhi after four months of struggle.“First two months of the lockdown saw all construction work being banned and we sat at home. Then we started getting small jobs, but I did not have people (as most labour had left for their villages) to do them … now people have started coming back and some work has opened up. Times are slowly improving,” said Mandal, who shifted from his native Bihar to Delhi’s Tughlakabad shanty-town  two decades ago.

Some high frequency indicators now point to green shoots of economic revival. GST collections rose by nearly 4 per cent year-on-year in September. Purchasing Managers’ Index for manufacturing touched an over eight-and-a-half-year high at 56.8 in the same month. Passenger vehicle sales increased sharply by 31 per cent, while freight carriage rose 15 per cent and power consumption grew by 5.6 per cent.

However, many believe it is not yet time to celebrate. “The recovery is fragile,” M Govinda Rao, former Member of the PM’s Economic Advisory Council told this publication, adding “there are still too many hotspots, pandemic numbers are still up and other contrarian signals.”In a note for Brickworks Rating, Rao pointed out that capital expenditure on new projects declined by 8 per cent in the second quarter over the same period last year, showing a continuous declining trend. Core sector growth was (-)8.5 per cent in August. While the credit-deposit ratio declined in the three fortnights ending September 11, 2020.

India’s non-oil, non-gold imports dipped 13.3 per cent in September, a sure sign that manufacturing hasn’t yet taken off and demand remains weak. Said Aditi Nayar, principal economist at ICRA, “the sharp gap in non-oil, non gold merchandise imports remains a cause for concern regarding the strength of domestic demand.” 

Projects which are the lifeblood for people like Mandal, were among the worst hit. Compared to `1.3 lakh crore worth of projects  being completed every quarter in 2019-20, in the June quarter of this year, just `32,600 crore worth of projects were completed according to data compiled by CMIE. “Capital expenditure which fuels growth remains weak … we are still not out of the woods,” said Rao, who recommends huge public spending and banking restructuring funded by a massive round of divestment as the way out. 

“The stimulus package announced (by the Government) so far does not entail a substantial fiscal package. The quick economic revival requires the government to loosen its purse to augment aggregate demand,” Rao noted.

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The New Indian Express