Worst behind us, Indian economy witnessing V-shaped recovery: DEA

Sep 4, 2020
New Delhi:  Days after India reported a 23.9 per cent contraction in its gross domestic product (GDP), the Department of Economic Affairs (DEA) in its Monthly Economic Review for August has said that the worst is over now as the Indian economy is going through a V-shaped recovery.

DEA cited the uptick in manufacturing purchasing managers’ index, auto sales, e-way bills among others to show that the country is witnessing a recovery.

It noted that as countries unlocked in the quarter starting in July, recovery is underway globally.

“India, too, is witnessing a sharp V-shaped recovery. India’s manufacturing purchasing managers’ index (PMI), at 52.2, has moved into expansionary zone in August for the first time since the lockdown, presenting much required recovery prospects for the manufacturing sector,” the 33-page report said.

It added that V-shaped pattern of recovery is seen in the high-frequency indicators including auto sales, tractor sales, fertilizer sales, railway freight traffic, steel consumption and production, cement production, power consumption, e-way bills, GST revenue collection, daily toll collections on highways, retail financial transactions, manufacturing PMI, performance of core industries, capital inflows and exports.

The DEA which comes under the Ministry of Finance further said that on the back of robust FDI and FPI inflows and savings from tepid imports, forex reserves as on August 21, have risen to an all-time high of $537.5 billion. These are capable of financing more than 13 months of imports, should the need arise from a surge in real sector activity, it added.

The domestic space is flushed with high systemic liquidity, as per the department.

“A system flushed with liquidity is a system ready to absorb a surge in real sector activity which is reflected in the 10-year benchmark bond yields declining from 6.55 per cent at end-April to 6.12 per cent at end-August, and narrowing of spread in yields of 3-year AAA rated corporate bonds and equivalent government securities from 246 basis points in end-April to 55 basis points in end-August,” it said.

With the MPC in its August meeting further keeping the policy rates unchanged, the systemic liquidity is well entrenched to supply credit to the real sector.

The monthly report, however, noted that the world after Covid-19 will be different with structural changes in production, consumption and work patterns.

“As India emerges from this crisis, it will be critical to re-orient the country’s policy matrix towards a calibrated reconstruction of the economy and building resilience for an uncertain future,” it said.

As per the report, some areas that may require specific attention include agrarian supply chains, factor markets, infrastructure, ICT, start-ups, financial inclusion, skilling and health care. Progress in these areas will sustainably boost economic growth in years to come, it added.IANS