India’s economy is set for an accelerated uptick in job creation and demand, backed by strong prospects of a revival in investment, a surge in bank credit and easing of inflation pressures, the Finance Ministry said on Thursday.
“Armed with necessary macro and micro growth drivers, the stage is set for India’s investment cycle to kick-start and catalyse its recovery towards becoming the fastest growing economy in the world!” the Ministry said in its monthly review of the economy for October.
“With India’s COVID-19 vaccination campaign crossing new milestones in rapid succession and teeming festivities lending renewed optimism to India’s ongoing economic recovery further demand stimulation, fuller restoration of supply chains, narrowing of demand-supply mismatches and greater employment generation are in the offing,” projected the review released by the Department of Economic Affairs.
Forecasting ‘a strong possibility’ of faster credit growth, the Ministry said that bank credit had been buoyant in September with ‘healthy credit penetration in labour-intensive sectors’ that bode well for job creation.
“In addition, high growth in personal loans and loans for consumer durables track an uptick in consumer spending in the festive season,” it noted.
Inflation outlook
Hardening input costs and ‘ripple effects of escalating global crude oil prices’ pose concerns on the inflation front, but such concerns are not yet embedded in ‘self-fulfilling inflationary expectations’ as seen in RBI’s inflation survey, the Finance Ministry said.
“Further, the recent cut in central excise duty on petrol and diesel prices is expected to soften inflationary pressures exerted by rising crude oil prices,” it emphasised.
The Ministry expects food inflation, which had hit a 30-month low in September, to cool further in October and bring retail inflation lower than 4.4% recorded in the previous month.
“Going forward, good kharif production and adequate buffer stock of food grains are expected to keep food inflation low,” it asserted.
The easing of inflation pressures, reflected in the retail inflation staying ‘comfortably close’ to the median of RBI’s monetary policy goal, bode well for prioritising growth, the review said.
“Unlike the central banks in advanced countries, the RBI is not under pressure to raise repo rates for checking inflation that creates more room for monetary side expansion of demand,” it pointed out.
Recovery signals
Among what it called as ‘clear indicators of meaningful recovery in India’s real sector’, the Ministry cited the increase in capital goods production as a possible reflection of ‘revival in investment’ and highlighted the rising power demand accompanied with a sharp increase in GST e-way bills generation in October.
“The uptrend in GST revenue collection is expected to remain robust post festive season driven by uptick in economic activity and strengthened tax administration,” the review suggested, referring to the second highest collections of ₹1.3 lakh crore in October, for transactions completed in September.
October marked a month of ‘resplendent growth in e-way bills with resurgent economic activity amplified by the festive season’, the Ministry said. As many as 7.35 crore e-way bills were generated in the month, 39% over the pre-pandemic level of October 2019 and 8.2% higher than September 2021.
In value terms, the spike was even sharper with e-way bills of ₹21.2 lakh crore issued, 9.4% over September and 49% higher than October 2019.
“This reflects a sustained growth in activity levels after the second wave,” the Ministry asserted.
Power consumption in October 2021 picked up to grow at 3.1% year on year (YoY) compared to 0.8% in September and 15.6% above pre-COVID levels of 2019.
“This indicates resilience in power sector braving coal supply disruptions at electricity generation plants (where supply disruptions have been caused by heavy rains in mining areas) and international coal price rise. The recovery in power demand and consumption is expected to gain further momentum,” the report said.
