In terms of nominal GDP, 96 per cent of pre-pandemic economic activity has been restored, assuming that the National Statistical Office’s first advance estimates hold. All high frequency indicators point to a recovery based on a revival of consumption is underway. But it could be short-lived, the Bulletin warned. ” The jury leans towards such recoveries being shallow and short-lived ” said the report by RBI deputy governor Michael Patra and him team of 19 economists. ” The key is to whet the appetite for investment, to rekindle the animal spirits – a spontaneous urge to action rather than inaction”
“The time is apposite for private investment to come alive. Fiscal policy, with the largest capex budget ever and emphasis on doing business better, has offered to crowd it in. Will Indian industry and entrepreneurship pick up the gauntlet?” the economists conclude.
Considerable uncertainty surrounds the outlook although on balance, the gathering strength of the recovery and its broadening ambit hold out optimism and the will to survive and revive, the report said.
Fiscal policy authorities face the ‘rock’ of stimulating the economy and the ‘hard place’ of ensuring sustainable finances. Even monetary authorities encounter a similar dilemma of conflicting pulls – ensuring an orderly evolution of the interest rate structure in the face of still enlarged borrowing needs against the need to remain accommodative and support the recovery.
On a positive note, most indicators point to a strong revival. Mobility indicators show that movement of people across all major cities in January and February 2021 was comparable to pre-pandemic levels. Peak power demand touched a new high, hitting 189.6 gigawatts on January 30 and surpassing all previous records. Goods and services tax (GST) remained above the Rs 1 lakh crore mark for the fourth straight month in January 2021 at Rs 1,19,847 crore. “This is reflective of growing business and trading turnover going beyond the festival season” said Patra and his team.
In the services sector, PMI services expanded for the fourth consecutive month in January 2021 to 52.8 (from 52.3 a month ago), supported by new work and increased business activity. “Price discounts, marketing strategies, and reopening of some outlets alongside pick up in overall demand spurred sales” the report said. Measures such as reduced stamp duty in Maharashtra and Karnataka have also helped boost demand for housing
But with petrol and diesel prices at record levels and broad-based increases in the cost of industrial raw materials and intermediates, the risk of firms passing on input price increases to final goods and services remain, especially as the economic recovery gathers further traction and activity normalises to pre-COVID levels.