With two waves of Covid-19 largely behind us, it is time to take a mid-year stocktaking of the Indian economy. We look at six parameters: exports, fiscal, growth, health, inflation, and employment.
Exports: Exports of traded goods have decidedly exceeded $ 30 billion a month – this trend has persisted for the past six months since March. In this financial year through August, India has already exported $ 164 billion worth of goods, a figure that was achieved only in November of the previous year.
It is true that the last financial year had two months of lockdown (April and May); Consequently, this year, April and May had the second wave of Covid-19 in India, where the maximum number of cases was 4 times higher than the first wave. This export growth comes at a time when global freight and transportation markets have been on edge for the past few months as supply chain disruptions in commodities and end products reverberate around the world.
India is benefiting from the ‘China + 1’ strategy that many companies have adopted and the availability of shipping capacity, which remains stagnant in the Pacific. With schemes such as Production Linked Incentive Schemes (PLIS), low corporate tax rates for manufacturing units, and revival of global demand, India appears to be well positioned to meet its fiscal 2022 export target. of assets worth $ 400 billion. This will be a structural break from the number of less than $ 350 billion over the last decade.
Fiscal: Collections of goods and services tax (GST) have been consistently above the Rs 1 trillion mark a month since October last year, with a slight rebound in June this year. The number of e-way invoices (representing only a part of the goods portion of the goods and services tax) has risen to 64 billion in July, which is the same level as between December 2020 and February 2021. Unlike the case of exports that continued to be strong in April and May, there was a drop in internal trade (due to partial blockages in several states) that was reflected in the drop in the number of e-way invoices to 40 thousand million in May. correlation between the increase in e-way invoices and GST charges.
Similarly, the direct tax collection figures look strong. Consensus estimates of after-tax earnings for publicly traded companies suggest that earnings in fiscal 2022 could double from fiscal 2021 levels; this will also be reflected in stronger direct tax collection. Given that the government has a large margin of maneuver of 6.8% of GDP as the fiscal deficit looms, markets could be positively surprised by the reduction in government loans, if revenues remain strong.
Growth: The 20.1% GDP growth figure for the first quarter of 2022 generated a lot of buzz and excitement about the underlying effects and resistance of real underlying growth. Even though average growth expectations for the full financial year, FY2022, have dropped from double digits (10.5% growth forecast at the beginning of the year) to 9.5% now, these numbers indicate a strong underlying economy.
India will be among the fastest growing size nations, despite having gone through a difficult phase of the second wave of Covid-19 in the first two months of the fiscal year. If (a) the momentum on the export front continues, (b) the ample fiscal space allows the government to spend and invest more, and (c) the recent big fundraising boom in the capital markets leads to a increased investment, generally short-term economic growth could surprise to the upside.
Health: vaccines have been a positive point for India. With a vaccination rollout consistently exceeding 10 million doses a day, India has already completed more than 700 million doses. At this rate, India could hit a billion doses before the festival quarter begins in early October. With the 84-day window for the second dose of Covishield, the number of fully inoculated population is expected to increase significantly from the current 17%. A new supply of vaccines is arriving through increased capacity and approval of new vaccines.
Given the efficacy of vaccines, the chance of a serious third wave is expected to be less. Without a lull in daily test numbers (stable at around 2 million per day) and a more prepared state health infrastructure, the macroeconomic disruption of any such wave could be significantly contained.
Inflation: Globally, central bankers have been surprised to the upside with inflation. In the United States, for most of the 21st century, impressions of consumer price inflation of more than 5% are unknown. Central bankers, especially throughout the developed world, expect this phase of inflation to be ‘transitory’ as supply chain disruptions are resolved. However, some central banks are beginning to take note of the possibility of sustained inflation. In India, consumer price inflation (CPI) has been hovering near the 6% mark since the start of the pandemic.
India’s flexible inflation targeting regime forces the central bank to keep inflation at 4% (+/- 2%). The United States now has an “average” inflation target, while India has a band. The RBI’s inflation fan diagram, released after its last monetary policy committee meeting, suggested that there is a reasonable chance of breaking the 6% inflation mark in the coming quarters. The impressions of this metric will substantially decide the course of RBI’s accommodative monetary policy.
Jobs: Various data sets, either the Periodic Workforce Survey (PLFS) or the Center for Monitoring the Indian Economy (CMIE), show that employment, especially the informal workforce, has been affected by Covid- 19. When an economy goes through a sudden and sharp contraction, as it did last year, it is sure to have an impact on employment. As the economy gets back on track (India should exceed pre-Covid-19 GDP levels sustainably by the third quarter of fiscal 2022), jobs should start to return. Along with inflation, employment is an important social and political indicator. Expect policymakers to focus on these over the next few quarters.
The author belongs to the National Investment and Infrastructure Fund (IFRS). Views are personal