The Current Phase of Indian Economy
Published by Sharekhan Education | March 1, 2021
The Current Phase of Indian Economy
The world economy was hit by a once-in-a-century crisis, the Covid-19 pandemic in 2020. The new year 2021 has begun on a strong positive note with vaccination drive in India & abroad. Let us look into some key performance indicators of the Indian economy to assess its current state:
Stimulative Monetary Policy: RBI continues with the accommodative stance of monetary policy. The measures taken by the RBI through a combination of policy rate cuts, proactive liquidity management, and regulatory forbearance have ensured the smooth transmission of policy rate cuts across the market spectrum and a rekindling of the corporate bond market. RBI has proactively taken steps to insulate domestic financial markets from global spillovers.
Demand Recovery: Capacity utilization in the manufacturing sector improved to 63.3%. Electricity and energy demand reflect a broader normalization of economic activity. Data for sales and new launches of residential units in major metropolitan centers reflect a renewed confidence in the real estate sector. Manufacturing, services, and composite purchasing managers’ indices (PMI) are in expansion zones.
Spending Recovery: Domestic spending is normalizing rapidly, and in sync, collections under the goods and services tax (GST) crossed ₹1 lakh crore ‘barrier’ for the fourth month in succession. Bank credit demand has increased at a pace above 6%, reversing 5 months of sub-6% growth. Micro and small enterprises and the services sector led by transport, trade, and tourism have powered the turning around of the credit cycle.
Inflation: After breaching the upper tolerance threshold continuously since June 2020, CPI inflation moved below 6 percent in December for the first time in the post-lockdown period, supported by favorable base effects and a sharp fall in key vegetable prices. The outlook for core inflation is not alarming.
Growth-oriented Budget: The Union Budget 2021-22 has provided a strong impetus for the revival of sectors such as health and well-being, infrastructure, innovation, and research, among others. This will have a cascading multiplier effect going forward, particularly in improving the investment climate and reinvigorating domestic demand, income, and employment. The investment-oriented stimulus under AatmaNirbhar given during the peak of the pandemic has started working its way through and is improving the spending momentum.
Looking at the above KPIs Indian economy seems to be in the initial recovery phase of the economic cycle. Going forward, the Indian economy is poised to move upwards on the growth trajectory. The shape of the recovery will be v-shaped after all and the ‘v’ stands for the vaccine.
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