Analysis of Indian Economy – November 2020

  Analysis of Indian Economy – November 2020 Read more on - Polity | Economy | Schemes | S&T | Environment Retail infla...

  Analysis of Indian Economy – November 2020

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Read more on - Polity | Economy | Schemes | S&T | Environment

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Retail inflation — 

1. Calculated by using the Consumer Price Index — surged to a 77-month high (highest since May 2014) of 7.61 per cent in Oct 20. Since Nov 2019, well before Covid-19, hit the world or Indian economy — retail inflation has trended consistently higher than expected. Much like the same time last year, unseasonal (and excessive) rains are the main reason for the spike in food prices. Higher fuel costs, thanks to high taxation by the government, have not helped. And Covid-induced supply disruptions have only made things worse. 

Core inflation —

1. Even “core inflation” (inflation rate without taking into account the prices of food and fuel, which tend to fluctuate the most) has steadily hardened since Nov 2019. The persistence of high core inflation is perhaps the most worrying trend. The most immediate implication of such high inflation in Oct is that RBI’s Monetary Policy Committee (MPC) (due on Dec 5) to deliberate whether to cut interest rates (to encourage economic activity), will most likely dither from doing so. RBI has missed its inflation target for one reason or another in past twelve months. And that trend seems to be continuing, future is highly debatable.

GDP Growth rate –

1. According toRBI  India entered a “technical recession” (GDP growth rate stays in the negative territory for two consecutive quarters) in Sept. Incoming data for the month of October 2020 have brightened prospects and stirred up consumer and business confidence... If this upturn is sustained in the ensuing two months, there is a strong likelihood that the Indian economy will break out of contraction of the six months gone by and return to positive growth in Q3:2020-21, ahead by a quarter of the forecast provided in the resolution of the monetary policy committee in Oct 2020.
2. But, it is can also be argued that Indians are savings more and more — household financial savings jumped to 21.4% of GDP in the first quarter of 2020-21, up from 10% in the fourth quarter of 2019-20 — and, in the absence of incomes rising fast enough, this behaviour will likely inhabit fast economic recovery.

Employment –

1. India’s annual GDP growth fell sharply between 2017-18 (7%) and 2019-20 (4.2%). A CARE Ratings study of over 1700 companies to evaluate the incremental employment, found that this deceleration had a sharp impact on the number of incremental (or new) employment. Barring Banks and FMCG (fast-moving consumer goods such as packaged food and toiletries), all other sectors employed fewer new people in FY20 as against FY19.

Non-performing assets (NPAs) in the banking sector - 

1. Gross NPAs of 31 banks have fallen from 8.7% of all advances in Dec 2019 to 7.7% of all advances in Sept 2020. This improvement is essentially because of the moratorium provided by the RBI — and not because companies are paying back their dues on time. A surge in NPAs is possible once such regulatory forbearance is over.

Government’s Policy - 

1. The government announced package Rs 1.46 lakh crore (third tranche of the Atmanirbhar Bharat Abhiyan package) for 10 key sectors, it can be argued that the PLI will help the Indian economy but it can also be argued that this scheme is spread over the next five years and it is unlikely to result in any new expenditure by the government in the current year. The actual additional spend is again much smaller than what initial announcements may suggest.

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