Economy

Economic recovery nascent, gathering steam slowly

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Some amount of pent-up demand for raw materials from industry may also have contributed to the rise in imports in December.

Latest economic data signals there was an uptick in demand, seemingly mostly made up of consumption, during the Diwali period, but at best indicates a sputtering economic recovery.

A 12% year-on-year rise in GST collections from November transactions, a sanguine 7.6% growth in imports in December, the first increase in ten months, and a sustained rise in railway freight loading in the five months through December, suggest a somewhat sustained momentum towards recovery.

However, other high-frequency data doesn’t quite confirm an unhesitant, broad-based resurgence. Core-sector production, manufacturing and services PMI and fuel sales have been weaker in the latest print (see chart).

Some amount of pent-up demand for raw materials from industry may also have contributed to the rise in imports in December. If inbound shipments continue to rise, import-sensitive exports, too, will get a boost. Seasonal demand during Christmas may have improved export orders for December, meaning the jury is still out on a sustained trade recovery.

Reflecting a gloomy picture of job creation, the unemployment rate headed downhill, from 6.5% in November to 9.1% in December, according to the CMIE data. The RBI’s forecasts of mild positive GDP growth rates of 0.1% and 0.7% in Q3 and Q4 respectively, still look optimistic.

The Centre is apparently giving a leg-up to demand with its budget spending and by encouraging CPSEs to bolster capex.

Its overall budgetary expenditure rose 48.3% on year, improving from a 9.5% rise in the previous month and a 26% decline in September. The capex in November at `43,803 crore was up 248.5% on year.

India’s GDP shrank at 7.5% in September quarter, a contraction much narrower than expected; the economy had contracted at a record 23.9% in the first quarter of this fiscal. All three components of demand — private consumption, fixed capital formation and government consumption — had contracted in Q2, but the first two at slower pace than in Q1. Government- consumption support to the economy was weaker in Q2 (-22.2%) compared with Q1 (+16.4%).

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