Govt expects better Q3 results, doesn’t see repeat of Q1 contraction in GDP

By: ENS Economic Bureau | New Delhi |

Updated: December 4, 2020 4:14:44 am

Finance Minister Nirmala Sitharaman. (File picture)

The Indian financial system is anticipated to submit an improved efficiency in October-December (Q3), the Finance Ministry stated in its Monthly Economic Review for November, even because it harassed on the necessity for “cautious optimism” as there’s a main draw back threat of the unfold of a second wave of Covid-19.

Even because it made a notice of the moderation in some excessive frequency indicators late in November, the Ministry stated that the report contraction in Gross Domestic Product (GDP) in the April-June quarter is “unlikely” to see a repeat.

“The year-on-year GDP contraction of 7.5 per cent in Q2 of 2020-21 underlies a quarter-on-quarter surge in GDP growth of 23 per cent. This V-shaped recovery, evident at the half-way stage of 2020- 21, reflects the resilience and robustness of the Indian economy…Moving deeper into Q3, there is a cautious optimism that global economic uncertainty does not mirror itself in India notwithstanding moderation of a few high frequency indicators late in the month of November,” the assessment stated.

In line with the recovery in the worldwide financial system, the sustained improve in main indicators past September raises hopes of a better efficiency in Q3, the assessment stated. A less-than-expected contraction in GDP in Q2 was largely resulting from strong non-public sector efficiency, whilst authorities consumption expenditure in Q2 contracted 22.2 per cent as towards a 16.4 per cent progress in Q1.

The contraction in authorities consumption expenditure in Q2 displays “the effort to consolidate the fiscal situation given fall in revenues”, the assessment stated. The sharp hunch in tax and non-tax collections means authorities expenditure remained practically flat, and was supported by elevated market borrowings.

“On the expenditure facet, Centre’s whole expenditure for the primary seven months of FY2020-21 registered a y-o-y progress of 0.4 per cent, and stood at 54.6 per cent of BE (Budget Estimates) vis-à-vis 59.4 per cent of BE throughout the corresponding interval in FY 2019-20.

“The revenue expenditure witnessed a growth of 0.7 per cent and the capital expenditure fell by 1.9 per cent during April to October 2020 compared to the same period last year,” it stated.

GDP in Q3 is anticipated to be better than in Q2 resulting from a broad-based enchancment in numerous financial exercise indicators, whilst some of the essential knowledge factors are beginning to average. While energy consumption moderated from its double-digit year-on-year progress in October, it grew at 3.5 per cent in November.

The e-way payments generated, which have constantly improved since mid-August, witnessed a moderation in year-on-year progress from 21.4 per cent in October to five.9 per cent in November. Manufacturing PMI moderated to 56.3 in November towards the last decade excessive degree of 58.9 in October amid slower will increase in manufacturing facility orders. A PMI print above 50 means enlargement and a rating beneath 50 denotes contraction.

The assessment identified that the financial system benefited from financial assist packages introduced by the federal government, report ranges of abroad fairness flows in the Indian monetary markets, efficient financial transmission resulting in decrease rates of interest in the financial system, and a sturdy agriculture sector efficiency. The demand for jobs underneath the Mahatma Gandhi National Rural Employment Guarantee scheme has surged, with a year-on-year progress of 47.2 per cent in November.

“The downside risk, however, remains the spread of a second wave of Covid-19. However, there is a growing cautious optimism that the steep plunges of April-June quarter of 2020 may not resurface with significant progress in vaccines and contact intensive sectors increasingly adapting to a virtual normal,” the report famous.

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