‘Govt. should address supply chain disruptions, augment aggregate demand’
After six months of severe stress triggered by the toughest lockdown so far, some high-frequency indicators point towards economic recovery but there are signs that this revival is fragile, Brickwork Ratings said.
It estimated that the economy is likely to contract by 13.5% in the second quarter (July-September), and the contraction in FY21 is likely to be about 9.5% unless the government takes immediate initiative to revive the economy. “After six months of severe stress triggered by the severest lockdown so far, there finally is some good news on the economy,” it said in a report.
The manufacturing PMI has shown a sharp increase from 52 in August to 56.8 in September, the highest in eight years. GST collections at ₹95,480 crore in September have recovered to increase by 3.8% from last year and were higher than August collections by 10%. Passenger vehicle sales had increased by 31%, while railway freight traffic showed a 15% rise.
After a gap of six months, merchandise exports registered 5.3% growth, driven by outbound shipments of engineering goods, petroleum products, pharmaceuticals and ready-made garments. There was an increase in power demand and generation as well.
“However, there are indications that this recovery is fragile. Capital expenditure on new projects declined by 81% in the second quarter… showing a continuous declining trend in investments,” the agency said.
Also, the core sector contracted 8.5% in August.
“The immediate task the government has to address is the removal of supply chain disruptions and augment aggregate demand to lift the economy out of the morass,” Brickwork Ratings said.
“This requires the government to initiate measures to increase public spending,” it said. “It should be less dogmatic on fiscal targets.”
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