Finance Ministry remains optimistic about economic revival in third quarter

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Moving deeper into Q3, there is cautious optimism that global economic uncertainty does not mirror itself in India notwithstanding moderation of a few high-frequency indicators late in the month of November, the Finance Ministry said in its monthly economic report.

The overall increase in rabi coverage with adequately filled irrigation reservoirs bodes well for the growth of agricultural output in 2020-21. The sustained demand for labour arising from an increase in rabi sowing has also contributed to growth in rural wages additionally propped up by an increase in wages and employment generation under MGNREGS.

The additional allocation of Rs 10,000 crore in the latest package for Pradhan Mantri Garib Kalyan Rozgar Yojana would give a further boost to job creation in the rural sector and supplement rural incomes.

An increase in minimum support prices for both kharif and rabi crops in 2020-21 and progress in rice procurement have already been supplementing rural incomes in the country.

"Higher incomes, among others have led to increase in sales of passenger vehicles, two and three-wheelers and tractors by a good year-on-year margin in October," the report said.

The recently celebrated festive season contributed to a rise in fresh COVID-19 positive cases in India, although numbers have started to decline again, a trend seen in many other countries.

Consequently, worldwide, the months of October and November 2020 have been of economic uncertainty with global composite PMI and goods trade activity showing a tepid increase. Energy and metal prices around the world have moved in different directions further adding to the
uncertainty.

In general, global inflation has softened in advanced economies while climbing up further in emerging market economies reflecting a relatively larger impact of supply-side disruptions on economically more challenged countries in the world.

"High optimism among investors however continues unabated as seen in equity markets the world over. With further weakening of US dollar in November, prospects of growth in rest of the world have become stronger," the report said.

It said that the index of eight core industries contracted slightly more in October than in the previous month due to a large contraction in production of petroleum refinery products. This has also led to a contraction of petroleum exports.

"Manufacturing PMI moderated to 56.3 in November against the decade-high level of 58.9 in October. With PMI Services index also ending the seven-month sequence of contraction to rise to 54.1 in October, growth of output in the second half of 2020-21 is poised to replicate the performance of Q2," the report said.

Power consumption and E-Way bills are seen to sustain the growth momentum in November along with a continuous increase in average daily electronic toll collection, double-digit growth in rail freight traffic and gradual recovery in passenger earnings.

Port cargo traffic has almost converged to the previous year level in October with domestic aviation steadily adding passengers, month after month. With consumption of petroleum products also emerging out of its seven-month contraction in October, a domestic impetus to growth is more visible.

Foreign Direct Investment (FDI) inflow rose more than 10 percent year-on-year to reach $40 billion in the first six months of 2020-21. FPI inflows also reflect the same sentiment reaching a historic high of $8.5 billion in November, the report said.

"The downside risk, however, remains the spread of a second wave of COVID-19. However, there is a growing cautious optimism that the steep plunges of April-June quarter of 2020 may not resurface with significant progress in vaccines and contact intensive sectors increasingly adapting to a virtual normal," the report said.

It is important to follow covid-appropriate behaviour and earnest observation of laid down standard operating guidelines (SOPs) till a vaccine is approved and a large section is inoculated, the report said.