Rising tax collections, auto and FMCG sales augur well, but these are early days
A clutch of macro indicators for September could suggest the slump is bottoming out. GST collections for September, at ₹95,480 crore are 4 per cent up year-on-year, besides being at a seven-month high. The Purchasing Managers’ Index for September was at its highest level in eight years. Maruti, Hyundai and Tata Motors have reported a year-on-year surge in factory sales, indicating pent-up demand as well as the festive season mood coming into play. A 15 per cent y-o-y increase in freight volumes handled by the Railways in September reduced the first half decline in freight traffic to 9 per cent. A silver lining in the prevailing gloom is the south west-monsoon finishing the season at 109 per cent of the Long Period Average, a factor that is likely to turn in a bountiful kharif crop and hopefully keep rural demand (agriculture bucked the contraction in the first quarter by growing at 3.4 per cent) going. Rising tractor and fertiliser sales during the season correspond to the increase in acreage under paddy and oilseeds. Meanwhile, some FMCG and consumer durable companies have reported an upswing in the case of white goods, health and hygiene products and processed foods.
While these are all positives, it may be too early to declare a recovery. The uptrend needs to sustain beyond the festival season that has just begun. According to a survey by CARE ratings, “BFSI, trade and real estate sector felt that demand has picked up since unlock measures were announced but the same was not true for respondents belonging to construction and services sector.” It also observes that “a greater number of micro units experienced closure of businesses compared to large units or even SME units” — and these are beyond the reach of the RBI’s liquidity packages. The PMI data has to be seen in this context.The revival signs are also explained by the unlocking of the economy and release of over two months of pent-up demand. Some data points remain unflattering. Core sector output showed a contraction in August for the sixth straight month. The erosion of salaried jobs has to an extent been made up by the increase in rural employment, with the Centre’s additional allocation towards MGNREGA working as a safety net. Going forward, farm incomes need to be protected with a focus on non-farm employment as well.
For the economy to return to pre-Covid levels (just 4.2 per cent growth in 2019-20), the Centre will have to do some heavy-lifting to crowd in private investment. The fall in private consumption and investment must be arrested. Analysts expect an 8-9 per cent degrowth this year and a fiscal deficit of a similar order, owing to a slippage in revenues and higher expenditure commitments. The Centre could consider an additional fiscal stimulus, as suggested by some of its own experts. Its capex should not suffer as it ramps up revenue spending, as that would hurt long-term growth.