27 November 2024 : Indian Express Editorial Analysis
1. Revival on the cards for Indian economy
(Source: Indian Express; Section: Idea Page; Page: 13)
| Topic: GS3 – Indian Economy |
| Context: |
|
Analysis of the News
Economic Growth Projections:
- India’s economy is expected to grow at a robust rate, exceeding 7% for the current fiscal year.
- The second-quarter growth rate is anticipated to be slightly lower at 6.8-6.9%, but a significant recovery is projected in the second half, buoyed by improving demand and investments.
Key Economic Indicators Reflecting Positivity:
- The Purchasing Managers’ Index (PMI) for services and manufacturing has consistently been in the favorable range of 57-60 over the past three months, indicating strong economic activity. The average composite index of above 60 is the highest in the last five years.
- GST collections for the first seven months of the year reached ₹12.74 lakh crore, surpassing last year’s collection of ₹11.64 lakh crore for the same period, reflecting healthy tax compliance and consumption patterns.
- Two-wheeler sales rose by 16% in the first seven months, and passenger car sales, after a dip in September, increased by 9% in October due to the festive season.
Urban and Rural Consumption Trends:
- Temporary factors such as the “shradh” period, a time of abstention from purchases, led to subdued sales, especially in automobiles. However, October witnessed a revival in consumer demand.
- Rural demand, previously muted due to low farm output and high inflation, shows signs of recovery. A good kharif crop, aided by a larger cultivated area and reservoir levels at 87%, is expected to boost farm output by 3.5-4%, driving rural consumption.
Inflation Concerns and Future Outlook:
- Inflation remains a challenge at 6.2%, driven by surging food prices, particularly onions and tomatoes.
- Relief is expected as the kharif harvest increases the supply of key crops like pulses and vegetables by December, potentially moderating food inflation.
- The base effect of high inflation last year should also help reduce inflation figures by the end of the calendar year.
Investment Trends and Infrastructure Growth:
- Investment activity has been positive despite a slow start caused by the general election, which temporarily slowed central and state government capital expenditure.
- Infrastructure-related sectors such as metals, cement, machinery, chemicals, and power have driven demand for funds. Private investment is largely aligned with government capex.
- The housing sector has performed well, with demand spreading to tier-2 and tier-3 cities, while renewable energy investments have significantly increased capacity.
- However, consumer goods industries face underutilized capacities, limiting new investments in this segment.
Monetary Policy Implications:
- The Reserve Bank of India (RBI) maintains its growth forecast at 7.2%, supporting its anti-inflation stance.
- The current inflation rate precludes the possibility of a rate cut in December, but policy decisions in February will depend on inflation trends and global economic conditions.
Impact of Global Factors:
- Potential policy changes in the United States, including immigration restrictions, increased import tariffs, and corporate tax adjustments, could have inflationary effects globally, which India’s Monetary Policy Committee (MPC) is likely to consider.
Need for Sustained Momentum:
- While the growth forecast of above 7% is positive, it remains lower than the 8.2% growth achieved last year. Policymakers must avoid complacency and continue efforts to sustain and strengthen economic momentum.
Conclusion
India’s economy is on track for steady growth, with key indicators such as GST collections, manufacturing, and investment activity showing positive momentum. While inflation and rural demand remain challenges, factors like a strong kharif harvest and improving consumption trends offer optimism. However, the risks from global economic uncertainties and inflation management must be carefully monitored to ensure sustained growth.
