Amid the government’s claims of a V-shaped financial recovery, Corporate India does not look to have pulled its socks up just however for fresh investments, and a second Covid-19 wave coupled with a spike in core inflation could make the procrastination longer.
A choose-up in consumption witnessed in the December quarter — largely driven by release of pent-up demand for the duration of the festive season — has clearly not strengthened given that if something, consumption has come to be weaker of late. The manufacturing and mining sectors, each employment-intensive, have shown indicators of fresh weakness even as MSMEs and the informal sector, also significant job creators, stay in the doldrums.
Related News
-
Stocks in concentrate: RIL, Axis Bank, Reliance Home Finance, Maruti Suzuki, Bank of Maharashtra, auto stocks
-
Stocks in concentrate: Nureca, Max Life Insurance, Axis Bank, Bharti Airtel Vodafone concept, Affle India
-
NPA Watch: Banks wrote off loans worth more than Rs 25,500 crore in Q3
So, even if the Central government manages to double its price range devote in the ongoing quarter (Q4) from the year-ago level to meet the Revised Estimate of expenditure for FY21, the Gross Domestic Product (GDP) could contract in the March quarter at a price steeper than the 1.1% estimated in the second advance estimate released by the National Statistical Office lately.
All this implies that a really favourable base could turn out to be the only predominant push to the GDP in Q1 and Q2 of the next economic year, with not substantially help coming from heightened financial activity. The V-shape is getting disturbed, for confident.
Compounding the development worries would be the likelihood of RBI getting forced to rethink its dovish stance, provided each the wholesale and retail inflation prices. The ‘core’ inflation, which reflects more sustained, generalised upward movement of rates, has jumped in current months.
Both investments and consumption demands continue to sputter. As per the index of industrial production, capital goods production shrank a steep 9.6% in January, reflecting that substantial businesses with possible to invest and give the substantially-required impetus to fixed asset creation in the economy, are however to take the plunge. Equally disconcerting is 6.8% annual contraction in the production volume of even customer non-durables in January clearly the reduced middle class and the poor are wary of spending on even essentials. Overall industrial output contracted in January by 1.6% against a 1.6% rise in December.
While the second and third Covid waves in numerous nations are receding, India appears to be getting into into a second wave, wrote Saugata Bhattacharya, chief economist at Axis Bank. The nation on Monday reported 26,291 new instances, the highest each day spike of 2021. Worse, though caseloads are going up in numerous states, the surge in Maharashtra (it has contributed more than 60% of the fresh instances in the final handful of days), the most industralised state, is more worrisome for the economy. The second wave in the state seems to be substantially steeper than the initial wave.
Inflation saw a broad-based rise in February. Retail inflation hit 5.03% in February from a 16-month low of 4.06% in the earlier month. Wholesale price tag inflation, as well, spiked to a 27-month higher of 4.17% in February. What could add to the inflation pressures is the rise in oil rates: Brent reached $70 a barrel on Monday, as information showed China’s financial recovery accelerated at the start off of 2021.
A sustained rise in oil rates could also have material fiscal consequences, as the Centre in that case may possibly have to reduce auto fuel taxes, a significant item in its income kitty. Bank of America estimates that a Rs 5 per litre reduce in taxes on petrol and diesel to ease stress on customers could widen the Centre’s FY22 fiscal deficit by 30 basis points from the estimated level to 7.5% of GDP. The Rs 5 a litre tax could lower the Centre’s revenue from assorted certain levies on auto fuels by about Rs 71,760 crore, it added.
While a surge in retail meals inflation was along the anticipated lines, core inflation (CPI excluding meals, beverages and fuel) shocked on the upside by increasing to 6% in February from 5.5% in January. Not just elevated oil rates, which can potentially inflate transport fees, but also discretionary products like clothes and well being-associated expenditures added to sequential momentum in core CPI inflation.
“On the whole, underlying inflation is picking up, and growth will be sequentially weaker in Q1 after a fast-paced normalisation in H2 2020, but remains on a recovery path,” analysts at Nomura stated. Still, at its next policy meeting on April 7, RBI will most likely hold all policy prices and its accommodative stance unchanged, they added.
Demand for raw components see a spurt as organizations go by way of the “reset phase”. This is set to inflate India Inc’s input fees and could weigh on its profitability.
According to the manufacturing PMI, input price inflation hit a 32-month higher in February on expanding order flows and input inventory, as well, saw a record rise. Even input price inflation in the services PMI hit its highest in eight years in February.