There are some favourable signs of economic recovery in the Indian economy. The first one is the rate of growth of core sector outputs. The core industry output in last May, compared to the same month of FY 2020, has risen by 16.8%. The core sectors of the Indian economy include coal, crude oil, natural gas, power, steel, cement and fertilizer. These eight industries comprise 40.27% of the weight of the items present in the Index of Industrial Production (IIP). It is a composite indicator measuring short term changes in the volume of production of these eight industries. It is known that the IIP is released by the National Statistics Office (NSO). It is released after a gap of six weeks of the reference months. The growth of IIP has given some cause to cheer as it is an important indicator of economic recovery.
Secondly, there has been evidence of revival of rural and small-town consumer spending. Economists are concerned about the status of spending in the economy as in the pandemic phase, crores of people lost their jobs. In this situation, the news of a revenue rise by15% on a year-on-year basis in June on the basis of revival of pent up rural and urban demand is no doubt a relief.
Thirdly, Reserve Bank of India data shows a positive current account in FY 2021. This is the first such incident in the last 17 years. The current account balance shows the difference between the value of exports of goods and services and that of imports. The surplus of Current Account Deficit (CAD) means that export value is higher than import value. In the last FY, India recorded a CAD surplus of 0.9% of GDP in FY 2021 as against a deficit of 0.9% in FY 2020. India had an overall surplus of Balance of Payments (BoP pent up) of $ 87 billion during FY 2021, according to RBI data. Fourthly, there are other signs of forward movement of the economy. Heightened generation of e-way bills and higher demand for electricity and fuel and higher production of automobile units are some of those indicators.
Sustenance of the positive indication is important
Many economists like C Rangarajan, the former Chief of the Economic Advisory Council of Prime Minister and a former RBI governor have stated that India will face a challenge to reach its GDP to pre-Covid levels. For this, India needs to achieve 8% GDP in this fiscal. Aditi Nair, Chief Economist, ICRA reportedly said that high frequency data indicators confirmed a sequential improvement in June although the trend relative to June 2020 was mixed. ICRA expects an 8.5% growth rate of GDP in FY 22. But that also depends on the speed of vaccination.
Consumption and new investment are crucial
Two things are most important for an economy to go forward. One has been private consumption growth and the second is growth of new investment. In these two aspects, the Indian economy has been performing poorly. It is also reported that new project investments were down by 13% in the June quarter. This is because the government sector projects took a bigger blow than the private sector. Business sentiments were not at all bright.
The surplus CAD has been a matter of cheer. However, there is reason to be sceptical as well. Last June, exports were high due to some recovery in the US and some other countries. The higher export of petroleum oil, engineering goods and ornaments was due to this. But lower than expected imports is also a reason for surplus CAD. Low imports are not a good sign for the Indian economy. A considerable portion of inputs of production of the economy depend on imported inputs. So low import value means slow economic activities.
Income of the unorganised sector should be increased
One of the most important precondition of economic distress has been the ruinous condition of the unorganised sector. Most economists think unless the unorganised sector takes a steady upturn, economic recovery is not an easy task. This sector has been hugely impacted yet the extent of the damage cannot be easily recognised by national income statistics. The government should step in to increase the income of the people in the unorganised sector. In that case, the demand for goods and services would increase and there would be a possibility of economic revival.