Post Date : August 5, 2020
As the nation gradually unlocks from the COVID-19 restrictions, the worst on the economic front seems to be over as high-frequency indicators show improvement, according to the latest monthly report released by the Ministry of Finance on Tuesday.
As per the reports, indicators responsible for the recovering economic status of the nation include index of industrial production, purchasing managers index, power generation, production of steel and cement, railway freight, traffic at major ports, air cargo and passenger traffic, e-way bill collection, consumption of petroleum products and motor vehicle registrations among others.
However, the report by the Department of Economic affairs also suggest that the risks on account of rising COVID-19 cases and intermittent state lockdowns still persists.
The inflation in June eased relative to the previous two months, indicating weak demand pressures and food supply chain recoveries. Volatility in most of the essential commodity prices stabilised reflecting their uninterrupted availability.
Lower inflation, nonetheless, is supportive of lower interest rates and benchmark bond yields that further softened in June.
According to the report, growth in money supply is commensurate with potential demand for credit in the commercial sector, although part of the growth has been driven by a surge in net foreign exchange assets.
The government has been deploying surplus liquidity available with banks to finance critical support to the economy damaged by the pandemic.
Although this has challenged the fiscal position, the government has been rationalising expenditure to ease the fiscal burden. Goods and Services Tax collections also provided some respite with year-on-year contraction falling from 38.2 per cent in May to 14 per cent in July.
“On the external front, India continues to attract robust foreign direct investments. Foreign portfolio investment inflows also rebounded to a 15-month high in June, reflecting the unshaken belief of foreign investors in India’s macroeconomic fundamentals.”~ Monthly report released by Ministry of Finance
As a result, the Indian rupee recovered to 75.53 per US dollar by June-end as compared to the previous month-end.
Since the outbreak of the pandemic in the nation, stronger recovery of exports ensured that India registered a trade surplus of 0.8 billion dollars in June despite rising crude and gold prices. Which follows a current account surplus in the January to March quarter for the first time in more than a decade.
On the back of buoyant FDI, the resurgence of FPI flows and current account surplus, foreign exchange reserves crossed half a trillion mark in June.
This safeguards a year of India’s imports. Finally, India’s persistently low external debt continues to add resilience to the external sector, a necessary safeguard in COVID-19 times, said the report.
India which went under lockdown in March, grew at 3.1% in this quarter. According to the report, GDP figures of April-June quarter of 2020, slated to be released towards the end of August, will throw some light on the expected recovery of the Indian economy.