Positive elements seen during contraction: Each day now begins with the count of lives lost due to the pandemic and the freshly affected in the last 24 hours. Equally disastrous is the contraction in the economy that has happened due to the spread of the virus which prompted governments to resort to prolonged lockdown.
The stringency index coined by Oxford University, measuring the relationship between the intensity of the lockdown and loss of economic activity, has put India in a comfortable position so far as fatality rate is concerned at 1.78 against 3.0 in US, 5.3 in China, 10.1 in France, 3.1 in Brazil and 4.2 in Indonesia. Conversely however, the contraction in GDP in April-June of FY21 in India is (-) 23.9, US (-9.1), France (-18.9), Brazil (-11.4), China (+3.2) and Indonesia (-5.4). Although the fatality rate should be the most relevant indicator of successful fight against the virus, the adverse impact on economic growth has to be taken up with equally stern steps of reviving the economy.
For India, the first quarter of the current fiscal was predominated by prolonged lockdown as the government drew up a stimulus package with a combination of massive relief measures by way of direct transfer of funds, free provision of foodgrains for the poor, enhancement of liquidity for the MSMEs and a series of reforms in various sectors (real estate, affordable housing) to attract private investment.
As the country passed the first month of Q2 in FY21, it is interesting to look at some of the positive elements. First, agriculture, forestry and fishing sector has achieved a quarterly growth of 3.4%. A healthy Southwest monsoon, record kharif production and expected good rabi season would contribute to GDP in the balance period of the current year. The resultant growth in rural income was evident in increasing rural construction of houses, other buildings and roads, higher consumption of fertilisers leading to a higher sales and registration for tractors and two-wheelers.
The second good indicator is rising toll collection and increased freight earning by Railways. The freight loading by Railways has gone up from 65.4 MT in April 2020 to 95 MT in July ’20, by 45%. The highway toll collection has gone up from 37% of the budgeted target to 85% during this period. The speed of freight trains has reached 46 kmph which is the net result of Dedicated Freight Corridor programme.
During April-August ’20, the ministry of roads and highways has constructed 3,181 km of national highways against a target of 2,771 km at the daily rate of 21.2 km which is, however, marginally lower as compared to FY20 and FY19. By bringing a much-needed change in Model Concession agreement in BOT model to be reassessed in every five years as against every 10 years now would bring certainty in cash flow and mitigate the risk of private investment in road sector.
The third good indicator is provided by commercial mining. The auctioning of coal mines would not only improve the availability of coal for the end users, it would also encourage the coal gasification programmes for sustainable development of fuel use. Coal India has just announced Rs 5,800 crore. The Coal India would be investing another Rs 25,000 crore in 2022-26 period for other Coal gasification capacities.
Fourthly, the GST collection has gone up from Rs 43,000 crore in April’20 to Rs 86,449 crore in August’20, nearly 88% of the collection in last year. GST as the major source of government revenue (central and states) crucially depends on the growth in manufacturing and the behaviour of various segments under it. Although the June’20 data indicates a 158% rise in manufacturing indices compared to April’20, the prolonged lockdown, the poor scale of investment activities in infra and construction segments and lack of spending had undermined the rise in production in capital, intermediate and consumer goods segments. The core industry index (8 critical sectors comprising of 40.27% of IIP) has degrown by 9.6% in July’20 as compared to 37.9% in April’20.
It is pertinent to remember that Atmanirbhar Abhijan is already bearing fruit and would be the most effective driving force in growth of Indian manufacturing in defence procurement, design and software programming, Metro rail network, oil and gas transportation, renewable energy sector, automobile and auto components, chemical, textile and food processing and health care industry. The FDI flows in last month is encouraging. The forex reserves at $541.43 bn as on August 28, 2020, is quite satisfactory and indicates an optimistic foreign investor sentiment towards India.
In Q1FY21, the PFCE has dropped by nearly 27% against a 5.5% growth in Q1 of last year signifying a major fall in discretionary spending by private sector as well as by household. However, GFCE, the government’s revenue expenditure, net of interest payments and major subsidies has risen by as high as 16.4% in Q1, against 6.2% growth in last year thereby enhancing its share at 19.1% of GDP in the current quarter. The list of fresh opportunities in specific projects to attract private investment and FDI shown in NIP online and proposed formation of Development Finance Institutions (DFI) are steps in the right direction to spruce up GFCF.
The author is DG, Institute of Steel Development and Growth
(Views expressed are personal)