Economists, however, caution against interpreting the data as a broad-based revival
Inflation in food articles, fuel and power contracted in July.
In twin blows to Indian economic revival, higher food prices drove retail inflation to a five-month high of 7.4 per cent while factory output fell for the first time in 18 months. The second consecutive month of rise in consumer price index (CPI)-based inflation will add to the pressure on the Reserve Bank of India (RBI) to again raise interest rates to tame high prices. Inflation has been above the targeted zone for the ninth month in a row and as per statute, the RBI will now have to explain to the government in writing why it failed to keep prices below 6 per cent.
The inflation in the food basket spiked to 7.89 per cent in October 2019 as against 5.11 per cent the preceding month.
The fiscal deficit rose primarily on the back of lower non-tax revenues, which came in at 60 per cent of full-year target, compared with 62.4 per cent for the same period last year.
'Pump prices of petrol and diesel have reached historical highs. An unwinding of taxes on petroleum products by both the Centre and the states could ease the cost-push pressures,' the Monetary Policy Committee (MPC) has said.
The record contraction in the growth rate of eight core sectors will have its impact on IIP.
India plans to keep its fiscal deficit within 3.9% of GDP.
A government official said out that with hardly any economic activity, an immediate duty hike will not be productive and could be announced once the lockdown eases and demand revives.
Industrial output had slowed to 5-month low of 2.1% in March.
Exports in February fell to $21.55 billion compared with $25.35 billion a year ago
At over 6 per cent, most states in October had inflation rates above the Reserve Bank of India's target band of 2-6 per cent.
A sharp sell-off in the Indian equities markets after a spike in crude oil prices should not be surprising. Historically there is a negative correlation between stock valuations in India and the price of Brent crude oil, which is the benchmark for the Indian crude oil basket. Between 2011 and 2014, crude oil traded above $100 a barrel for an extended period, the Sensex-trailing price/earnings (P/E) was 18X, on average, during the period, nearly 22 per cent lower than the current index P/E of 23X.
Since January 2021, the inflation rate in health has stood in the range of 6.08-8.44 per cent.
Costlier vegetables and eggs pushed up retail inflation to a nearly six-and-a-half year high of 7.61 per cent in October, keeping it significantly above the comfort zone of the Reserve Bank.
This is the third consecutive month when GST mop-up remained below the Rs 1 lakh crore mark, despite the festival season.
Exports rise for 8th month, albeit at lower pace
The ministry of health and family welfare spent Rs 3,948 crore in May this year compared to Rs 7,816 crore in the corresponding month of the previous year. On the other hand, at Rs 12,930 crore, the expenditure had risen almost 200 per cent in April against Rs 4,327 crore in the corresponding month of 2019-20.
India's rupee is likely to remain under pressure due to high prices of crude oil and other commodities, and may stabilise at around 79-80 against the US dollar in the near term, say experts amid limited headroom available with the Reserve Bank to check the weakening of the domestic currency. The currency has slumped over 5 per cent this year after Russia's invasion of Ukraine sent international crude oil prices soaring to a decade high. On Monday, rupee ended at a fresh all-time low of 78.34 (provisional) against the US dollar.
While the ratio determines the extent to which the government is able to finance its expenditure, it is also an indicator of tax compliance. Developed countries have a higher contribution of tax to their GDP.
India's industrial production grew by 1 per cent in December, official data showed on Friday. According to the Index of Industrial Production (IIP) data, the manufacturing sector output grew by 1.6 per cent in December 2020.
Currently, the retail inflation is well below the RBI's comfort level. The government has asked the central bank to keep inflation in the range of 4 per cent.
Inflation in 'fuel and power' basket rose sharply to 11.22 per cent in May from 7.85 per cent in April as prices of domestic fuel increased in line with rising global crude oil rates.
The GDP has been estimated at Rs 126.54 lakh-crore (Rs 126.54 trillion).
Instead of a rate hike, or even a pause, there could be a window for the RBI for an interest rate cut
To make possible discretionary spending including capex and that on welfare, the government decided to borrow more than planned in FY21 -- Rs 12.7 trillion.
Agriculture activity, according to recent channel checks by Prabhudas Lilladher, is expected to continue at a strong pace in FY22.
While the tax-to-GDP ratio of 9.88 per cent has been assumed for FY21, the same as last year, when it touched a decadal low, for FY22 a ratio of 10.7 per cent has been assumed, an average of the last five years.
GST collections in March touched a record high of over Rs 1.23 lakh crore, a 27 per cent growth over the year-ago period, the Finance Ministry said on Thursday. "GST revenues crossed above Rs 1 lakh crore mark at a stretch for the last six months and a steep increasing trend over this period are clear indicators of rapid economic recovery post pandemic," the ministry said. Closer monitoring against fake-billing, deep data analytics using data from multiple sources including GST, income tax and customs IT systems and effective tax administration have also contributed to the steady increase in tax revenue over last few months, it added.
Imports too declined 26 per cent to $29.47 billion in August, leaving a trade deficit of $6.77 billion.
The government clarified that the majority of industrial establishments had reported nil production, and cautioned that the numbers should not be compared with those of previous months. "It is not appropriate to compare the IIP of April 2020 with that of earlier months, and users may like to observe the changes in the IIP in the following months," said the ministry of statistics & programme implementation.
"Growth is expected to moderate gradually in China... pick up in India, and remain broadly stable in the Asean-5 region."
Power generation and distribution is the most indebted sector
Sectors with positive growth during the month include rice, iron ore, oil seeds, oil meals, meat, dairy and poultry products, pharmaceuticals, coffee, engineering goods, and plastic.
The RBI has targeted consumer price inflation at 6 per cent by January and 4 per cent by March 2018.
Experts said the higher pay out will boost consumption demand.
Direct economic stimulus measures such as tax cuts for individuals and industry would have helped to prop up the Indian economy which was hit hard by the lockdowns across several states in India, say economists and corporate leaders. While the measures announced on Monday are focussed more on the supply side, these steps would take a lot of time to move the needle for the economy.
Hardening prices of manufactured items during the month may refrain the Reserve Bank of India from cutting rates in its policy review on February 8.
Almost all infrastructure ministries continued spending on capex throughout the lockdown, even as the Centre tried to maintain some semblance of economic normalcy.
India's appetite for imported crude oil may wane in fiscal year (FY) 2023 from record levels in pre-pandemic 2019-20 fiscal as higher oil prices, a spillover from the conflict in Ukraine, and increasing use of biofuels affect domestic demand for petroleum products. Brent crude surged to a nine-year high, shy of a July 2008 record $147.50 a barrel, before declining to around $100 a barrel - but the volatility in commodity rates will slow global economic growth and use of fuels. Demand for all oil products may grow at only 2-3 per cent in FY23, slower than the current fiscal and nearly half the 5.5 per cent growth estimated by the petroleum ministry, according to industry officials.
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