InsPIRE

Indian Economy Poised to Grow at 9.2% in FY22

Posted on January 10, 2022January 10, 2022 by InsPIRE

Dr Debesh Roy, Chairman, InsPIRE

The Indian economy is poised to grow at 9.2% in FY22 (Figure 1) as per the First Advance Estimate of the country’s Gross Domestic Product (GDP) (at 2011-12 prices) estimated by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation (MoSPI), Government of India. This is against a pandemic-induced contraction of 7.3% suffered by the economy in FY21. The real GDP is estimated to increase by 1.3% over that of the pre-pandemic year (FY20).

It is pertinent to note is that, notwithstanding a favourable base effect, the economy is set to record a higher GDP compared to the pre-pandemic year FY20, due to favourable policy environment, resulting in a positive investment growth, as reflected in the Gross Fixed Capital Formation (GFCF).

The nominal GDP is set to grow at a robust 17.6% in FY 22, compared to -3.0% in FY 21. The FY22 nominal GDP, estimated at INR 232.15 trillion (USD 3.12 trillion) is expected to be 14.1% higher than that of the pre-pandemic year (FY20) at INR 203.51 trillion (USD 2.74 trillion). The economy which was on a decelerating mode during the three pre-pandemic years, (real GDP growth at 6.8%, 6.5% and 4.0% respectively during FY18, FY19 and FY20 and nominal GDP growth at 11.0%, 10.5% and 7.8%, respectively), is set to achieve a robust growth 9.2% (real GDP) and 17.6% (nominal GDP) in FY22 (Figure 1).

The real Gross Value Added (GVA) in FY22 is estimated to grow at 8.6% (Table 1). The GVA data reveals that all sectors of the economy except ‘trade, hotels, transport, communication and services related to broadcasting’ (which are still 8% below the pre-pandemic level) reached the pre-pandemic level (on constant prices).

The agriculture sector, which was the only sector unaffected by the pandemic in terms of real GVA growth in FY21, is estimated to grow steadily at 3.9%, compared to 3.6% in the previous year and 4.3% in FY20. The industrial sector is expected to achieve a robust recovery, with manufacturing; mining and quarrying; electricity, gas and water supply; and construction, set to grow at 12.5%, 14.3%, 8.5% and 10.7%, respectively (Table 1). Under the services sector, trade, hotels, transport, communication and services related to broadcasting, which was the hardest hit during the pandemic is estimated to grow at a robust 11.9%. However, financial, real estate, and professional services, etc. is estimated to grow at a less impressive 4.0%. Public administration, defence, etc. is estimated to grow at 8.6% (Table 1).

On the expenditure side, Private Final Consumption Expenditure (PFCE) is still 3% below the pre-pandemic level, and its share in GDP is observed to be on a declining trend from 57.1% in FY20, to 56% in FY 21 and further down to 54.8% in FY22 (Figure 2). This is a cause for concern as India’s growth story has essentially been a consumption led one. Loss of lives, livelihoods, jobs and income caused by the pandemic have depressed private consumption.

Another concern is the decline in the share of Government Final Consumption Expenditure (GFCE) in GDP, from 11.7% (FY21) to 11.6% (FY22) (Figure 2). A steady and sustainable growth in GDP can be sustained with a higher share of GFCE, as it crowds in private investment. While fiscal consolidation is of prime importance for attaining high, steady and sustainable growth, it is imperative to recalibrate the same to address the serious impact of the pandemic on the economy.

According to research by SBI (Ecowrap, 07 Jan, 2022), “taking into account the revised GDP figures of today, even if we consider the additional spending announced by the Government in early December 2021 fiscal deficit of the Government still comes at INR 15.88 trillion (USD 0.21 trillion) or 6.8% of the GDP. For FY23, the fiscal consolidation should remain limited to 30-40 bps from the current fiscal”.

A silver lining in the expenditure side is the increase in the share of Gross Fixed Capital Formation (GFCF) in GDP to 32.9% in FY22 (Figure 2), the highest level in the last five years. The primary driver for higher GFCF is the investments made to meet the growing pent-up demand in the economy. The focus of GoI on investment in infrastructure and the Performance Linked Incentive (PLI) Scheme, should lead to accelerated growth in investments, leading to a higher and more sustainable growth in GDP.

According to the NSO, the First Advance Estimates (FAE) of GDP, introduced in 2016-17 to serve as essential inputs to the Budget exercise, is based on limited data and compiled using the Benchmark-Indicator method i.e., the estimates available for the previous year (2020-21 in this case) are extrapolated using relevant indicators reflecting the performance of sectors.

While there could be some amount of under- or over-estimation of GDP in the FAE, the subsequent estimations, could be within 20-30 basis points, on either side. There could possibly be an upward bias in the revised estimates for FY22. However, it again depends on the impact of the prevailing omicron variant OF Covid-19 on contact-intensive sectors of the economy. Nevertheless, SBI has stuck to its estimate of 9.5% growth in FY22. Earlier estimates by RBI and IMF also point to a 9.5% growth for the Indian economy, while OECD’s estimate is a tad lower at 9.4%, which would still be higher than the growth estimates for China at 8% (IMF) and 8.1% (OECD), making India the fastest growing large economy in the world.

CLIMATE CHANGE

India at COP-26: Presenting the Panchamrit of LIFE

Posted on November 17, 2021 by InsPIRE

Bijetri Roy, Managing Director & Chief Strategy Officer, InsPIRE

On the first day of the UNCCC COP-26 in Glasgow, Indian Prime Minister, Shri Narendra Modi silenced critics who were trying to write off the vision of India at COP-26 as “not bold” by setting out a bold vision with action. From net-zero greenhouse gas emissions by 2070 backed with strong achievable commitments, to suggesting a just, equitable, human-centric and planet-positive world, India is surely set to make the world a better place, to say the least!

India’s announcement comprised the Panchamrit (5 elements for climate action):

Non-fossil electricity capacity of 500 GW by 2030;
50% electricity capacity from renewable energy by 2030;
1 billion tonne carbon emission reduction by 2030;
45% reduction in carbon emission intensity of GDP by 2030;
Net-zero emissions by 2070.

To quote the Hon’ble Prime Minister, “All of us have to make a conscious choice. The choice of crores of people will mitigate the fight against Climate Change with each passing day.” He suggested that we all make the conscious effort of adopting LIFE (lifestyle for environment).

Developed nations should be expected to make climate finance of USD 1 trillion available at the earliest because it is important to track climate finance just the way we track the progress of climate mitigation and appropriate pressure should be created upon those that don’t meet their climate finance commitments.

सम्-गच्छ-ध्वम्,सम्-व-दद्वम्,सम्वोमानसिजानताम् (Let’s all interact together and everyone’s mind should be one).

***Infographic by Institute for Pioneering Insightful Research & Edutech Pvt Ltd (InsPIRE)***

Law and Policy

Motherhood or Not, That’s the Question: Decoding the Recent Abortion Law Amendments in India

Posted on October 18, 2021 by InsPIRE

Sarabjit Kaur, Associate Creative Ideator, InsPIRE

Motherhood!! Such an overwhelming feeling it is for any woman! To be able to nourish a new life within you! Makes you feel nothing less than a superwoman! But what if a woman conceives without knowing so? Well, in that case, she can choose to continue with the pregnancy or abort it. Now, the tough situation comes when a woman has to make up her mind to give up her pregnancy. It becomes all the more daunting when such a pregnancy is a result of sexual violence or abuse. Imagine a woman undergoing the pain of an unfortunate incident as heinous as rape. Such a woman will never be interested in reliving the painful incident by continuing with the unwanted pregnancy. Abortion is the saviour in any such scenario.

Abortion laws have been recently amended via the Medical Termination of Pregnancy (Amendment) Act, 2021 to allow a relatively easier access to abortion care in India. Under the recent amendments, the State Governments have been directed to set up Medical Boards in their respective states to exercise such powers as have been prescribed in the Act.

The 2021 Act has its own silver lining as it aims at making the abortion-related procedural formalities comparatively easier. Now, only a single medical practitioner’s opinion is sufficient to terminate a pregnancy which is less than 20 weeks old.

The star of the 2021 Act is the provision permitting rape victims to undergo abortion up to a period of 24 weeks. This can prove to be a game-changer in the Indian scenario. We cannot deny the lack of primary health care facilities in India. Several surveys have exposed harsh realities concerning rape victims. Almost half of the rape victims never get any medical attention related to rape. Another disturbing statistical points out that about 1/3rd of the rape victims do not discover their pregnancy until they have already entered their second trimester. You may now be able to appreciate the saving power of this provision; allowing termination of pregnancy up to a period of 24 weeks.

The second major change impacts the pregnancies with substantial foetal abnormalities. Such women can approach the prospective Medical Board in their respective state to seek medical opinion concerning abortion. The 2021 Act provides that the Medical Board shall have the final say in such matters. Furthermore, the upper gestational limit has been removed in case of such pregnancies.

Reinforcing the Puttaswamy judgement, the 2021 Act finally aims to honour the ‘right to privacy’ of women availing abortion care in India. The Act bars the medical practitioner from disclosing any details of the woman undergo abortion to anyone except to a person prescribed under law.

With such promising changes, the future definitely looks brighter in case of abortion care in India. We cannot say that all has been achieved but the recent amendments can certainly be regarded as a step in the right direction. It will require considerable effort on the part of the State Governments to be able to implement the provisions prescribed under the recent amendments. Although the Act is inadvertently ambitious, we can only hope that it is able to make the situation relatively better for the concerned vulnerable women.

Disclaimer

This is an analysis of the Medical Termination of Pregnancy (Amendment) Act, 2021. Views and ideas expressed in this article must be read as an analytical piece, rather than a debate between right and wrong.

economics

Status of Inflation in India – September 2021

Posted on October 18, 2021 by InsPIRE

Dr Debesh Roy, Chairman, InsPIRE

Retail Inflation

India’s Consumer Price Index (CPI) inflation fell sharply from 5.3% in August 2021 to 4.35% in September 2021, coming closer to RBI’s medium-term inflation target of 4%, and continuing its declining trend for the fourth consecutive month (Figure 1). A sharp decline in food inflation was primarily responsible for the decline in general inflation. While rural inflation dropped to 4.13% in September from 5.28% in the previous month, urban inflation declined from 5.32% to 4.57%. The retail inflation trend for the first half of FY22 reveals a sharp rise from 4.23% in April to 6.3% in May, before tapering to 6.26% and 5.59% in June and July, respectively.

The RBI in its latest Monetary Policy on 8 October 2021 had sharply reduced the outlook for CPI inflation during FY22 from 5.7% projected in the previous MPC meeting (04-06 August 2021) to 5.3%. However, the IMF in its October 2021 issue of World Economic Outlook raised its inflation projection for India from 4.9% estimated in April to 5.6%, citing growing worldwide inflationary risks.

The main cause for the decline in retail inflation in September is the sharp easing of food inflation (Figure 2). The Consumer Food Price Inflation (CFPI) declined steadily from 5.15% in June 2021 to 3.96% in July and 3.11% in August, before it fell sharply to 0.68% in September. Sharp decline in inflation was observed in respect of vegetables (-11.68% to -22.47%) and eggs (16.33% to 7.06%). Inflation for cereals continued to be negative at -0.61%. However, inflation for edible oils (34.19%) and non-alcoholic beverages (12.99%), remained elevated.

Fuel inflation increased from 12.95% to 13.63%, due to continuous rise in international crude oil prices. Core inflation, which excludes food and fuel prices, however, rose from 5.5% in August to 5.8% in September.

Further easing of food inflation in the coming months due to good kharif harvest, and favourable base effect, will keep inflation benign. This would give enough leeway to the RBI to continue with the accommodative stance, at least till April 2022 monetary policy review. However, inflation risks remain high due to elevated international commodity prices, including crude oil prices. Further, price pressures could intensify due to the second-round effects of high fuel costs, resulting in higher prices of other goods, after a time lag.

Wholesale Inflation

India’s WPI inflation declined to 10.66% in September, the lowest in six months, from 11.39% in August (Figure 3). However, the continued high WPI inflation was on account of high inflation of manufactured products (weight of 64.2%) in May, June, July, August and September at 11.25% 10.96%, 11.2%, 11.39% and 11.41%, respectively.

It is evident that cost push pressures are gradually seeping into prices of manufactured goods, due to increase in manufacturing activities in the post-pandemic situation. The highest inflation was observed in case of crude petroleum and natural gas at 59.5%, 46.97%, 40.28%, 40.03% and 43.92%, respectively, during the last five months, due to steady increase in the international price of crude oil.

Fuel and power inflation at 36.74%, 29.32%, 26.02%, 26.09% and 24.81 respectively in May, June, July, August and September. The decline in WPI inflation was due to reduction in food inflation from -1.29% in August to -4.69% in September, 2021.

Price volatility in the international markets for crude oil and rising prices of edible oils and metal products would lead to further rise in WPI inflation, considering the fact that India is a price taker for most of these commodities.

**Source: Office of the Economic Adviser, Ministry of Commerce and Industry, GoI**

There continues to be a divergence between CPI and WPI inflation (Figure 4) because of the nature of the price indices and higher weighting of food items in CPI (47.25% against 15.26% for WPI) and that of manufactured items in WPI (64.23%).

**Source: MOSPI, GoI and Office of the Economic Adviser, Ministry of Commerce and Industry, GoI**

economics

The Maharajah’s Homecoming: Tatas win Bid for Air India

Posted on October 13, 2021 by InsPIRE

Bijetri Roy, Managing Director & Chief Strategy Officer, InsPIRE

Government of India (GoI), by announcing the Tata Group as the winning bidder for the sale of Air India on 8^th October 2021, paved the way for the “Maharajah” to go back to the Tatas after seven decades. The bid was submitted by Tata Sons Pvt. Ltd. through its wholly owned subsidiary Talace Pvt. Ltd. At an enterprise value of INR 180 billion (USD 2.39 billion), the Tatas will get Air India, along with its low cost subsidiary Air India Express and a 50% stake in ground handling firm AISATS.

The Tatas will also get ownership of iconic brands like Air India, Indian Airlines, and the Maharajah, besides 141 aircraft and over 7,000 domestic and international airport slots. With the takeover of Air India, Tata Sons, which operates Vistara and AirAsia India, will become the second-largest airline in the domestic market with a market share of about 25%, and the largest Indian airline on international routes.

The bid value of INR 180 billion (USD 2.39 billion), includes INR 27 billion (USD 0.36 billion) to be paid by Tatas in cash for the acquisition, and INR 153 billion (USD 2.04 billion) debt that Tatas will take (to be retained in Air India). Further, Tatas will have to pay around INR 91.85 billion (USD 1.22 billion) towards capitalised lease obligation of 42 leased aircraft primarily the Boeing 787 Dreamliner aircraft.

This deal signifies the firm resolve of GoI to work towards strategic disinvestment, beginning with Air India, and to be followed by BPCL, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans, Neelachal Ispat Nigam Limited, among others, to be completed in 2021-22, as announced in the Union Budget 2021-22. Privatisation of Air India has been a complex issue and it took two decades to fructify, while GoI has been suffering a daily loss of INR 200 million (USD 2.66 million) and an annual loss of INR 73 billion (USD 0.97 billion) for running Air India. The impact on GoI’s finances after the sale would be INR 446.78 billion (USD 5.95 billion).

The sale of Air India to the Tatas promises to transform the Indian aviation sector, strengthening competition in the domestic market and making Air India a major player in the international aviation market. At the same time, it places India on the right track on disinvestments and economic reforms agenda of the government.

economics

Monetary Policy: RBI Retains Accommodative Stance, but Signals Beginning of Normalisation

Posted on October 13, 2021October 13, 2021 by InsPIRE

Dr Debesh Roy, Chairman, InsPIRE

The Reserve Bank of India (RBI) retained its accommodative stance and kept policy rates unchanged in its latest monetary policy announced on 8 October 2021. However, the beginning of normalisation of policy stance by halting its bond-buying efforts, was evident.

The six-member Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, unanimously decided to retain the policy repo rate at 4% and the reverse repo rate 3.35%. However, all members, except one, voted to continue with the accommodative stance as long as necessary to revive and sustain growth on a durable basis and mitigate the impact of Covid-19 on the economy, while ensuring that inflation remains within the target going forward. The Governor made it clear: “We do realise that as we approach the shore; when the shore is so close, we don’t want to rock the boat because we realise there is a life, there is a journey beyond the shore”.

However, the RBI decided to suspend the Government Securities Acquisition Programme (G-SAP), the Indian version of Quantitative Easing (QE) of the US. Through the G-SAP, RBI has injected INR 2.2 trillion (USD 29.3 billion) of liquidity in the system [out of the total INR 2.37 trillion (USD 31.5 billion) injected through bonds], during the first six months of 2021-22. The central bank would absorb a higher quantum of liquidity gradually through its 14-day variable rate reverse repo (VRRR) auctions, from the current INR 4 trillion (USD 53.2 billion) to INR 6 trillion (USD 79.9 billion) in stages, by December 2021.

The Governor justified the suspension of G-SAP by stating: “Given the existing liquidity overhang, the absence of a need for additional borrowing for GST compensation and the expected expansion of liquidity in the system as Government spending increases in line with budget estimates, the need for undertaking further G-SAP operations at this juncture does not arise. The Reserve Bank, however, would remain in readiness to undertake G-SAP as and when warranted by liquidity conditions and also continue to flexibly conduct other liquidity management operations including Operation Twist (OT) and regular open market operations (OMOs)”.

Deputy Governor Michael D. Patra explained that RBI is still in passive liquidity mode and was accepting what the market was offering, and that the central bank aims to move to an active mode of liquidity management.

The RBI sharply moderated the outlook for CPI inflation during 2021-22 from 5.7% projected in the previous MPC meeting (04-06 August 2021) to 5.3%, due to easing of food prices, combined with favourable base effects. However, prices of crude oil which will remain volatile over uncertainties on the global supply and demand conditions, rising metals and energy prices, acute shortage of key industrial components and high logistics costs are adding to input cost pressures. The inflation projection for Q2 FY2021-22 was reduced from 5.9% to 5.1%; and 5.3% to 4.5% in Q3. The inflation projection, however, remained the same at 5.8% for Q4. The risks continued to remain broadly balanced. The inflation projection for Q1 2022-23 was raised from 5.1% to 5.2%.

Projection for India’s GDP growth rate by the MPC was at 9.5%, which was same as the previous projection. Domestic economic activity is expanding with the weakening of the second covid wave. With favourable prospects for kharif and rabi crops, rural demand is expected to be buoyant. Significant increase in the pace of vaccination and the forthcoming festival season, are expected to support a rebound in the pent-up demand for contact intensive services, and boost growth. Easy monetary and financial conditions would also support growth. Further, the reforms undertaken by the government focusing on infrastructure development, asset monetisation, taxation, telecom sector and banking sector should push up investor confidence, enhance capacity expansion and facilitate crowding in of private investment. The production-linked incentive (PLI) scheme also augurs well for domestic manufacturing and exports.

However, downside risks to growth are global semiconductor shortages, elevated commodity prices and input costs, and potential global financial market volatility. Projection for Q2 GDP growth was raised from 7.3% in the previous MPC meeting to 7.9%. Q3 projection was retained at 6.3%, and 6.1% growth was retained for Q4. The real GDP growth for Q1 2022-23 was estimated at 17.2%, which is same as the previous projection.

Given the inflation expectations and growth projections for the current financial year, it is expected that the RBI would retain its accommodative stance at least till the MPC meeting in April 2022, while maintaining the policy repo rate at 4%. However, the next step for the central bank in liquidity management would be to raise the reverse repo rate from 3.35% to 3.50% in December 2021 and 3.75% in February 2022.

economics

Strong Global Recovery on the Cards: India Set to Regain its Numero Uno Position

Posted on October 5, 2021 by InsPIRE

Bijetri Roy, Managing Director & Chief Strategy Officer, InsPIRE

The OECD, in its interim report for September 2021, has projected a strong, but uneven global growth in the years 2021 and 2022 (Charts 1 and 2). Government and central bank support and progress in vaccination would lead to growth above the pre-pandemic level. With countries emerging from the crisis facing different challenges, the growth would remain uneven.

Wide differences in vaccination rates between countries and emergence of new variants of the virus have restricted the opening up of economies and affected the supply chains. Output and employment gaps continue in many countries, especially in emerging-market and developing economies (EMDEs), where vaccination rates are low.

Estimates by OECD indicate that global GDP would grow at 5.7% in 2021 (Chart 1), followed by 4.5% in 2022 (Chart 2). The GDP has now surpassed its pre-pandemic level, but output in mid-2021 was still 3.5% below the projection made before the pandemic. This indicates a real income shortfall of over $ 4.5 trillion (in 2015 PPPs). It is, therefore, imperative to close this gap to minimise long-term damage to the global economy from the pandemic through job and income losses.

G20 countries are expected to grow at 6.1% in 2021 (Chart 1) and 4.1% in 2022 (Chart 2), mainly driven by high growth in India (9.7%), China (8.5%), Turkey (8.4%), and Argentina (7.6%) in 2021. The year 2022 could witness a slower, although a stable growth due to pick up in investments and consumption, without the benefit of base effect. Growth in GDP in 2022 is expected to be influenced by India (7.9%), Spain (6.6%) and China (5.8%).

As indicated by high-frequency activity indicators, such as the Google location-based measures of retail and recreation mobility, global activity continued to strengthen in recent months, helped by improvements in Europe and a strong rebound in India and Latin American countries.

India is set to regain its position as the fastest growing economy in the world. According to OECD, India is expected to grow at a real GDP of 9.7% in 2021-22 (Chart 1), albeit from a low base. However, the Indian economy is expected to get on track to a long-term high growth trajectory, with a brisk growth of 7.9% in 2022-23 (Chart 2).

The Q1 (April-June 2021) GDP figures, the latest core sector growth data and recent positive high frequency activity data, indicate that the economy is gaining traction. Standard & Poor’s has also highlighted in a recent Asia Pacific report that India’s growth in GDP would make a strong rebound in the July-September 2021 quarter, but warned against the impact of faster than expected tapering by the US Federal Reserve, causing capital flow risks as monetary policy by Reserve Bank of India (RBI) remains accommodative with real rate of interest in negative territory.

However, tapering by US Federal Reserve is expected to be gradual and EMDEs like India may not face an adverse situation similar to the taper tantrum of 2013. Moreover, India’s economic fundamentals are getting stronger, and the country could grow at a faster and more sustainable rate.

The Chinese economy is showing signs of a slowdown in economic growth. Troubles are brewing in the real estate and energy sectors in China. The country is facing an energy crunch due to shortages of coal for power generation, forcing it to increase purchase of natural gas. China’s power demand increased by 15% during the current year, but its domestic supply of coal – the largest source of power generation in the country – grew by just 5%. The Evergrande crisis has shown the fragility of the real estate sector in the country. If that is not all, the Chinese government’s recent crackdown on large corporations could impact investment and growth adversely.

**India’s data is for the fiscal year 2021-22*
*Source: OECD Economic Outlook, Interim Report September 2021*

*India’s data is for the fiscal year 2022-23
*Source: OECD Economic Outlook, Interim Report September 2021.*

The global economy continues to be in a state of flux. There is ample evidence to suggest that the supply shock reverberating around the world, combined with outbreaks of the Delta variant of corona virus, is tempering the recovery in growth. Results of business surveys from the US, UK and Eurozone suggest that economic activities have slowed down as delivery times grew longer and backlogs built up.

Policy Measures to Support Global Growth Prescribed by OECD

Governments need to ensure deployment of all resources necessary to accelerate vaccinations throughout the world to save lives, preserve incomes and control the virus. Also, there is need for stronger international efforts to support vaccinations in low-income countries.

Continuance of macroeconomic policy support, with the mix of policies contingent on economic developments in each country.

Maintenance of accommodative monetary policy, with a clear guidance about the horizon and extent to which any inflation overshooting will be tolerated. Also, there needs to be a clear roadmap towards normalisation of monetary policy.

Fiscal policies should remain flexible and contingent on the state of the economy.

Credible fiscal frameworks that provide clear guidance about the medium-term path towards debt sustainability, and likely policy changes along that path, to help maintain confidence and enhance the transparency of budgetary choices.

There is a need for stronger public investment and enhanced structural reforms for boosting resilience, and improving the prospects for sustainable and equitable growth.

economics

Brisk Core Sector Output Growth in August 2021

Posted on October 4, 2021 by InsPIRE

Dr Debesh Roy, Chairman, InsPIRE

India’s eight core industries witnessed a brisk 11.6% growth in output in August 2021, compared with 9.9% in the previous month, and 9.3% in June 2021 (Chart 1), in spite of a less beneficial base effect. The sector also witnessed a 3.9% increase from the pre-Covid level of August 2019. However, the overall output was still lower by 0.3 per cent when compared to the February 2020 level.

During the period August 2020 to February 2021, the growth remained negative or very low, ranging between (-) 6.9% (August 2020) and 1.3% (January 2021), due to fall in consumption and investment demand on account of the impact of country-wide lockdown and slow opening up of the economic sectors. The growth rose sharply to 12.6% in March 2021 and 62.6% in April 2021, mainly due to low base effect. The growth moderated to 16.4% in May 2021 (Chart 1).

**Source of data: Press Release dated September 30, 2021, Office of the Economic Adviser, Department of Promotion of Industry & Internal Trade, GoI**

The core sector growth in August 2021 was mainly driven by cement at 36.3% (compared to 21.7% in July and 7.5% in June 2021), natural gas at 20.6% (compared to 19% in July and 20.6% in June 2021), coal at 20.6% (compared to 18.8% in July and 7.4% in June 2021), electricity at 15.3% (compared to 11% in July and 8,2% in Junto e 2021), and refinery products at 9.1% (compared to 6.7% in July and 2.4% in June 2021) (Chart 2). The steel sector, however, witnessed a steady slide in growth from 24.9% in June 2021 to 9.4% in July 2021 and 5.1% in June 2021. But, fertilizers (-3.1%) and crude oil sectors (-2.3%) suffered decline in August 2021.

The high core sector output growth in August 2021 possibly reflects the beginning of a period of a more elevated and sustainable growth trajectory of the core industries, due to higher growth in the economic sectors and the thrust of the government on investment in infrastructure as per the National Infrastructure Pipeline. Weak monsoon rains in August positively impacted the output for coal, cement and electricity. Also, it influenced the increase in mobility that resulted in the growth in petroleum refinery products. However, excess rainfall during September could have an adverse impact on the growth of output in these sectors. Therefore, according to ICRA, core sector output in September may not be sustained, and could fall sharply to 4-6%.

economics, Financial Markets

US Federal Reserve Prepares to Taper in November

Posted on September 27, 2021September 27, 2021 by InsPIRE

Dr Debesh Roy, Chairman, InsPIRE

The Federal Open Market Committee (FOMC) at its meeting held on 22 September 2021, unanimously decided to maintain the rate of interest paid on reserve balances at 0.15% and also to continue with the federal funds rate in a target range of 0-0.25%, continuing with the accommodative stance. While the FOMC decided for now to continue with quantitative easing (QE) of $120 bn-a-month asset purchase program, the Fed Chair Mr. Jerome Powell made it amply clear that “tapering” of the program could be initiated at the next FOMC meeting in November 2021.

The stimulus package was introduced at the onset of the pandemic, and the US Federal Reserve pledged to maintain it until there was substantial progress on its dual goals of average 2% inflation and maximum employment. The Fed believes that the US economy would be on a firm footing on these two counts, and would, therefore start the tapering exercise. Mr. Powell also revealed that the FOMC broadly supports a gradual tapering and intends to withdraw the stimulus entirely around the second half of 2022.

There is however, less unanimity among Fed members regarding tightening of interest rates, as the eighteen-member Committee is now evenly split on the prospects of a rate increase in 2022. There could be three rate hikes by the end of 2023.

Impact of Taper Decision by US Fed on Emerging Market and Developing Economies (EMDEs) like India

Financial markets globally, including India’s seem to have factored in the imminent gradual tapering exercise by the US Federal Reserve. Indian markets continued to surge, in spite of the almost certain tapering from November 2021. QEs with near zero interest rates in developed countries, led to massive flow of funds to emerging market economies.

The 2013 tapering by US Fed in the aftermath of the Global Financial Crisis, led to what is known as “taper tantrum”. In response to the statement by the then Fed Chair Dr. Ben Bernanke in May 2013, suggesting that the FOMC might soon start to slow down its bond purchases, the US 10-year bond yield surged and triggered a wave of capital flight from emerging economies. The countries affected the most from the “taper tantrum” were South Africa, Brazil, India, Indonesia and Turkey, which were dubbed the “fragile five” by Morgan Stanley due to their high current account deficits and dependence on inflows of foreign capital.

However, the situation is vastly different now, and “taper tantrum” can be ruled out in India. Foreign Institutional Investors (FIIs) have invested $8.94 billion in India so far in 2021. The Sensex and Nifty have gained 23-25% during the year. The effect of the tapering would be relatively low for India’s markets due to strong fundamentals, with a low current account deficit and a high and steadily growing foreign exchange reserves, which have touched a comfortable $640 billion (as on 17 September 2021). While high inflation is a problem, it is transient in nature, as underscored by the Reserve Bank of India.

The EMDEs must certainly remain vigilant and take necessary monetary and fiscal measures to prevent taper to turn into a “tantrum” to cause any major outflow of liquidity from these economies.

agriculture, economics

Oilseeds and Commercial Crop Production in India – Kharif 2021-22

Posted on September 26, 2021 by InsPIRE

Dr Debesh Roy, Chairman, InsPIRE

The estimated production of oilseeds is set to decline by -1.4% to 233.9 lakh tonnes (LT) in Kharif 2021-22, from 240.3 LT in 2020-21, due to a decline in acreage by -1.3% (Table 1 and Chart 1). The five-year CAGR of oilseeds production is estimated to be 3.7%. India’s demand for oilseeds is mostly met through imports. Therefore, Government of India’s decision to launch the National Mission on Edible Oils – Oil Palm (NMEO-OP), a Centrally Sponsored Scheme, is expected to significantly increase acreage and output of oilseeds in the country.

Among major oilseeds, groundnut and soyabean are expected to experience decline in output in kharif 2021-22. Groundnut output is estimated to decline by -3.5% to 82.5 LT, due to -3.6% decline in area under cultivation (Table 1 and Chart 1). The five-year CAGR of groundnut production is estimated to be 6.5%. It is estimated that soyabean production would decline by -1.4% to 127.2 LT, although there has been a marginal increase of 0.5% in acreage. Soyabean output would grow at a five-year CAGR of 2.8%.

Commercial crops like sugarcane and cotton are expected to perform better than the previous year. Sugarcane production is estimated to grow at 5% over the previous year to set a record of 4192.5 LT, on account of 1.6% increase in acreage. The output of cotton is expected to increase by 4.4% to 362.2 lakh bales, although there has been a significant decline of -5.8% in the area under cultivation, signifying an improvement in productivity. Finally, the output of Jute and Mesta is expected to decline by -1.1% to 96.1 lakh bales, although there has been an increase of 1% in acreage (Table 1 and Chart 1).