Most high frequency indicators portend to a swift recovery of Bharat’s economy from the ill effects of Covid-19 pandemic. The economy exited from the technical recession by registering a modest GDP growth of 0.8% for Q3 of FY 2020-21. Inflation has gained control and has fallen back within the RBI’s target range of 2% to 6% although consumer discretionary basket, which includes categories linked to personal effects, health, education, transport and communication, etc., has been on a rise.
The stance is expected to remain accommodative due to pandemic disruptions. We expect no change in the key policy rate in the next meeting due in April on account of evolving inflation conditions. Wholesale prices for manufacturing products (along with manufacturing PMI) are on a rising trend.
This suggests that production is gaining traction on the back of economic recovery, improvement in demand conditions and rising input inventories. However, rising cost of fuel is an impediment to Bharat Inc.
On the other hand, Index of Industrial Production registered a negative number for January 2021 after turning positive in December 2020, partly due to the higher base in the previous year and partly due to a selective improvement in certain sectors. Further, FICCI’s Overall Business Confidence Index jumped to 74.2 touching decadal high (from 70.9) in the previous survey.
Trade Balance has improved in the month of February 2021 on the back of rising exports and falling imports. The Forex reserves have touched record levels and currently stand at $585bn (~18 months of imports), the fourth largest in the world. This significantly enhances the ability of the economy to withstand external shocks. Rising FII and FDI inflows and have contributed to this surge in FX reserves.
Services PMI has seen sharpest expansion in a year on the back of improving demand conditions. Unemployment rates have been steadily falling and have come down quite significantly to pre-Covid levels over the past few months with the resumption in economic activity.
(This article has been co-authored by Samiksha Punamiya and Nishit Vyas)
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