The sentiment boost that India's economy is in need of

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The sentiment boost that India's economy is in need of

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• As India opens up: Many states are going for phased unlocking, and economic momentum is gradually picking up. Proof? The movement in high-frequency indicators e.g. GST e-way bills, vehicle registrations, electricity demand, rail freight etc. But there's something diametrically opposite too.
• Sentiment: The PMI for mfg. and services showed contraction, in June. So business is cautious about the near future. It's clear that pushing a positive sentiment will boost the economic recovery, and vaccination rates will be the key to that. [PMI - Purchasing Managers' Index]
• Vaccination: India is averaging between 3.2 million daily doses to 6 m doses, with huge variations in between. If from here on, it can be kept at 6 to 8 million per day, then by Feb 2022 all adults can be fully vaccinated (both doses). That would be 66% of India, and herd immunity would be in sight. Economy will benefit.
• Animal spirits: The second factor that can push 'animal spirits' is government spending, but the govt. is not doing it. 

1. April May 2021 fiscal deficit was just Rs.1.2 lakh crore, 30% of what it was in 2020 (during lockdown)! The Rs.1 lakh crore upfront RBI surplus transfer did help this, as its accounting year changed
2. GTR (gross tax revenue) was Rs.3.1 lakh crore (April May), much higher than 2018 and 2019 collections
3. But despite all this, revenue expenditure was cut down drastically in May (by 41%), after growing in April 2021 (so that was due to statewide restrictons); it's important to push it in June '21 (else Q1 GDP would suffer)

• New relief package: The June 28 package worth Rs.6.3 lakh crore will have little imprint in 2021-22, as expenditure management efforts have been launched in parallel. Perhaps govt. worries on the revenue front a lot. 
• Capex by states: Other than these aspects, business will benefit if states push their capital expenditures, and one way to do that is to send more devolution of central taxes to them, rather than back-ending it in March 2022.

1. So far, Rs.39200 cr is given (April, May) and if that's the pace throughout, then Rs.2.4 lakh crore will be released in March 2022
2. States would be hurt as this is inefficient cash flow
3. Upping this will embolden states to spend more now

• Fuel taxes: The excise duty on fuels can be cut to boost sentiments, as the annual growth in consumption may be 14% in petrol an 10% in diesel (low base 2020-21). Higher consumption will mean more taxes, even if cesses are partially cut (same revenue in 2021-22 as 20-21, if cut is Rs.4.5 each). That can help cut consumer inflation.
• Summary: Even the RBI's monetary policy had indicated this cost-push inflation building up in economy, and it's time for lower fuel prices. More disposable incomes would mean more positive sentiment.

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