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State of Indian economy ahead of Union Budget 2022
The PM Narendra Modi-led BJP government is all set to present its 10th Union Budget since coming to power in 2014.
In this year's budget, the focus will largely be on the measures announced by the government to fasten the pace of economic growth.
India's economy had been faltering even before the Covid-19 pandemic struck. The pace of growth had slowed down and output had started declining.
The Covid-19 pandemic pushed gross domestic product (GDP) to its worst levels ever. India experienced its first ever technical recession in financial year 2020-21 with two successive quarters of negative growth.
However, the arrival of Covid vaccines and consequent fall in cases led to gradual easing of restrictions and business activities started to resume.
As a result, the economy grew by 20.1 per cent in the first quarter (Q1) of FY22, mainly on account of low base effect and has remained in the positive zone since. India's GDP for second quarter of FY22 came in at 8.4 per cent.
Agencies like the International Monetary Fund (IMF) and World Bank have shown in their economic outlook reports that India is on course to becoming the fastest growing economies of the world. While the former projected India to grow by 9 per cent, the latter projected it to grow by 8.3 per cent in FY22.
However, the projections are lower than the government's forecast of 9.2 per cent growth in the first advance estimates released by the National Statistical Office (NSO).
As per NSO, the Indian economy surpassed its pre-pandemic level in 2021-22. With the recovery unevenly gaining traction, all the constituents of aggregate demand entered into expansion, with investment, exports and imports exceeding their pre-Covid levels.
However, there are many challenges that the government will need to cater to.
Private consumption and investment are still a work in progress, and the restoration of livelihoods and the revival of the micro, small and medium enterprises (MSME) is a formidable task; especially at a time when the country is dealing with the third wave of Covid cases.
It is yet to be seen what impact the Omicron variant has on the economy as states opt for night and weekend curfews.
Here's a look at how some economic sectors stand ahead of the budget session.
Inflation
Globally soaring inflation rates have become a cause of concern for bad backs
Retail inflation in India accelerated to a five-month high of 5.59 per cent in December fuelled by soaring cooking gas price.
Whole price-based inflation (WPI) has remained in double digits for 9th consecutive month beginning April. In November, WPI had accelerated to 12-year high of 14.23 per cent.
WPI eased marginally in December to 13.56 per cent but, continues to be at an escalated level still.
The central bank had cut its key lending rate to a record low of 4 per cent in response to the pandemic and has kept it there since May 2020 but concerns over the need for policy normalisation have been growing in recent months with inflation edging higher.
The RBI is committed to its mandate to keep prices stable while maintainign the growth objective, deputy governor in charge of monetary policy, central bank deputy governor Michael Patra said.
Employment scenario
As per the household survey of the Centre for Monitoring Indian Economy (CMIE), the labour participation rate (LPR) turned up to 40.9 per cent in December, the highest since September 2020. India’s LPR has fallen dramatically in the past few years from well over 46 per cent in 2016 to just over 40 per cent in 2021. It is now among the worst in the world.
The unemployment rate worsened to 7.9 per cent in December from 7 per cent a month ago as the third wave of Covid-19 led to imposition of weekend and night curfews across states.
Jobs were lost in manufacturing, hotels, tourism, and education, while more jobs were created in construction, agriculture and retail trade
Exports at all-time high
Merchandise exports touched an all-time high of $37.8 billion, recording a sequential improvement of 25.9 per cent in December and achieved 75 per cent of the target set for 2021-22.
In fact, exports is one sector that has bucked the trend and showed positive growth even amid the pandemic.India has already crossed $300 billion worth exports in April-December period and is well on course to achieving target of $400 billion exports in FY22.
Meanwhile, merchandise imports also rose to their highest level of $59.5 billion in December, staying well above the $50 billion mark for the 4th consecutive month, indicating a strong underlying momentum of domestic demand
Fiscal position
According to the RBI bulletin released two weeks back, fiscal position of the government continued to post improvement, with net tax revenues touching an all-time high of 73.5 per cent of budget estimates (BE) and the gross fiscal deficit plummeting to 46.2 per cent of BE during April-November 2021, as against the five-year average of 50.6 per cent and 112.5 per cent, respectively.
On the expenditure front, capital expenditure improved by 13.5 per cent while revenue expenditure was up by 8.2 per cent over 2020-21.
The government may aim for a fiscal deficit of 6.3 per cent to 6.5 per cent of gross domestic product (GDP) for the next financial year, a less ambitious target than previously planned as Covid-19 infections threaten the economic recovery.
GST collections
Gross GST receipts stayed above the Rs 1 lakh crore mark for the sixth consecutive month in December on the back of the strengthening economic recovery and anti-evasion measures unveiled by the government.
The revenues for December are 13% higher than the same month last year and 26% higher than the GST revenues in December 2019, according to data released by the finance ministry.
The gross GST revenue collected in December totalled Rs 1,29,780 crore of which CGST is Rs 22,578 crore, SGST is Rs 28,658 crore, IGST is Rs 69,155 crore (including Rs 37,527 crore collected on import of goods) and cess is Rs 9,389 crore (including Rs 614 crore collected on import of goods).
For October-December quarter, the Centre recorded the highest GST collections of Rs 3.9 lakh crore since its inception.
This is an outcome of various policy and administrative measures to improve compliance and would perhaps demonstrate the inherent advantages of having a GST.
Forex reserves
Foreign exchange reserves stood at $634.287 billion on January 21, providing a cover equivalent to 13 months of imports projected for 2021-22.
Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.
Gold reserves increased by $567 million to $0.337 billion in the reporting week, RBI data showed.
Manufacturing
Manufacturing activity in the country remained robust in December on the back of new orders, despite moderating from the 10-month high outcome in November.At 55.5 in December, the IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) pointed to a strong improvement in overall operating conditions. This was despite the headline figure slipping from November’s 10-month high of 57.6.
The latest quarterly reading was at 56.3, its highest since the final quarter of fiscal year 2020-21, the survey showed. The 50-point mark separates expansion from contraction.
Services
India's services sector expanded for a fifth straight month in December, albeit at a slower pace than in the previous month, as demand rose but concerns over another wave of Covid-19 and inflationary pressures cast a shadow over the outlook, a survey showed.Services sector PMI eased to 55.5 in December from 58.1 in November, the lowest since September but still well above the 50-mark that separates growth from contraction.