Indian economy is poised to recover at a fast pace and reach pre-COVID-19 levels by the end of the year, the finance ministry said in its monthly report but also cautioned about the possibility of "fatigue with social distancing norms" triggering a second wave of coronavirus infections.
The sustained surge of activity levels in India, itself, is a reflection of a relatively more manageable pandemic situation in the country as compared to advanced nations, the report for October said.
"A steady contraction of active COVID-19 cases and a low case fatality rate has instilled measured optimism in India that the worst is behind us. At the same time, a second wave of the pandemic in advanced nations is a grim reminder of how reality hits back when caution is compromised."
"From a trickle in not so distant past to now a sea of humanity coming out on the streets, the people of India have embraced the new normal where self-protection is inseparable from economic activity," it added. The report, released on Wednesday, further stressed that India stands poised to recover at a fast pace and reach pre-COVID levels by the end of the year -- barring the incidence of a second wave that may be triggered by the fatigue with social distancing.
The continuous improvement in forward-looking RBI indices of consumption and business sentiment for the next year augur hope of a strong economic rebound. This is also corroborated by IMF's October 2020 projection of 8.8 per cent real GDP growth of India in FY 2021-22, highest globally, it said.
Pointing to the movement of high frequency indicators, the report said October numbers clearly indicate broad-based resurgence of economic activity, notably in healthy kharif output, power consumption, rail freight, auto sales, vehicle registrations, highway toll collections, e-way bills, rebound in GST collections and record digital transactions.
Rural consumption has stayed strong, in part helped by sustained MSP (Minimum Support Price) procurement of food grains by government at higher prices, it said. Manufacturing Purchasing Managers' Index rose from 56.8 in September to 58.9 in October, pointing to the strongest improvement in the health of the sector in over a decade.
Also, PMI Services index rose to 54.1 in October, ending the seven-month sequence of contraction, signalling improved market conditions, it added. With the onset of the festive season, overall consumption is expected to see further uptick in the coming months enhancing prospects of faster economic normalisation, according to the report.
Further, the report said the prospect of economic normalisation is also evident in the external sector indicators with consumption of petroleum products increasing in September and exports rebounding strongly with a year-on-year positive growth for the first time in last seven months.
October witnessed some moderation in exports growth, primarily driven by weak oil exports. The expected current account surplus during the year is likely to provide a cushion to increased spending in the economy, it said. Global investors continue to be upbeat about India's economic prospects as gross FDI inflows cross USD 35 billion during April-August, 2020, the highest ever for first five months of a financial year.
With net FPI inflows staying robust in October, INR stood strong at about 73 to a USD on the back of forex reserves now comfortably settled in excess of half a trillion dollars, the report said. On high food inflation, the report said that food prices have been under pressure but are likely to smoothen out with prospects of a good kharif harvest and reduced supply-side disruptions in inter-state movement of food products.
"A slight hardening of core WPI inflation in September is reflective of strengthening demand that appears to have caused a marginal uptick in the growth of bank credit as well in the fortnight ending October 9," it said.
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