The continuing spread of the virus poses a downside risk to India's short-term and medium-term growth rate, the Finance Ministry said in its monthly economic report for September. The report also said that the reforms carried out by the Narendra Modi administration in agriculture and labour sectors augured well for the economy and would show results in the coming months.
“The continuing spread of the virus poses a downside risk to India's short-term and medium-term growth rate.To combat these risks, the Government has strategically undertaken various important structural reforms encompassing various sectors,” the report, posted on the website of the Department of Economic Affairs on Sunday, said.
The report also suggested that as per available data, India seems to have crossed the peak in Covid cases. “Data for the 14-day period from September 17 to 30 suggests that India may have crossed the peak of COVID-19 case-load. During this period, the seven-day moving average of daily positive cases has steadily declined from about 93,000 to 83,000 while the seven-day moving average of daily tests have risen from about 1,15,000 to 1,24,000.”
“The pandemic however is far from over. Yet, the declining positivity rate at all-India level sets the stage to further push up the frontiers of economic recovery. For this, all stakeholders need to get into the act as remaining restrictions on access and mobility are further eased,” it said.
Major structural reforms launched by the Government–in agriculture markets, labour laws and definition of small and medium enterprises–provide unparalleled opportunity for the MSME to grow and prosper now and thereby contribute to job creation in the primary and secondary sectors,” the report said.
“The reforms in the agricultural sector were more overdue than even the labour reforms as the existing laws kept the Indian farmer enslaved to the local mandi and their rent-seeking intermediaries,” the report said.
However this view was countered earlier in the day by former Finance Minister P Chidambaram. “Only 6 percent of farmers sell their produce in the APMC market yards; the remaining 94 percent sell outside the APMC, mostly to local traders or a cooperative society or a processor,” Chidambaram said in his weekly column in the Indian Express newspaper.
The monthly economic report stated that record kharif crop production had led to a bump in rural demand, which was reflected in registration of two wheelers along with tractor sales reaching or surpassing previous year levels in August.
“Other high-frequency indicators have also improved in sync with global activity. Increase in global demand has led to expansion of India's export at 5.3 per cent in September on YoY basis. The recovery in rail freight enabled revenue earnings clocking positive year-on-year (YoY) growth for the first time since March in August and early September,” it said
Easing of inter-state movement restrictions, quarantine policy and unlocking were accompanied with recovery in rail passenger earnings and cargo traffic volumes continued to inch up towards previous year levels. With domestic aviation traffic also increasing, the upcoming festive months are expected to further boost growth, the report said.
The report said there were positive signs of revival in steel, power consumption, E-way bills, UPI transactions and GST collections,
“The availability of domestic liquidity matches that in the external sector although at this stage it is resulting in higher growth of demand deposits. This highlights the issue of rising precautionary savings which are, in turn, limiting growth in personal consumption and acceleration in activity levels,” the report said.
“As intermittent lockdowns cease, containment zones become fewer and smooth operation of supply chains resumes, a fall in retail inflation may boost personal consumption expenditure,” it said and added that growth in overall credit to non-agricultural sector is expected to be higher in the coming months driving on the uptick in the credit growth to MSMEs and trade services.