India Economic Pulse

India Economic Pulse - economic indicators and policy measures decodes high frequency economic indicators and the direction of government thinking, to make them more relevant for businesses.

Prepared by the EY Tax and Economic Policy Group, India, the first issue of India Economic Pulse highlights that large parts of the economy have recovered to levels similar to the corresponding period last year.

Rural economy, manufacturing, energy consumption, rail and road freight transportation, merchandise imports and exports and consumption of some services have seen an uptick, indicating economic recovery. However, businesses in sectors such as real estate, hospitality and travel industries continue to be pandemic impacted.

Key highlights of October 2021

Indian economy entering another growth phase

  • The Indian economy has picked up stronger momentum across different sectors indicating a broad-based growth recovery. 
  • Most encouraging growth was seen in the goods sector reflected by numbers around manufacturing, exports, and goods movement. The growth has picked up in the last few months over corresponding pre-COVID period in 2019. This has increased confidence in the durability of the growth going forward. 
  • However, consumption demand has been affected by high price inflation and it still needs to pick up across some sectors. 
  • Social mobility is at an all time high since the outbreak of COVID-19. Therefore in the last two months, there are signs of services growth also returning. This is an important trend as services sector form the bulk of the Indian economy
  • Exports have been doing very well and as per current trends would be well in excess of its previous high in 2018-19.

Robust tax collections provide support to public finance

  • After a severe impact of COVID-19 on Government’s revenue collections in FY 21, India’s tax collections in April– September FY22 have been robust and exceed the pre-COVID-19 FY20 tax collection under all heads i.e., income taxes, GST, customs duty and excise duty.

Fund raising tilts towards equity against debt, investments remain strong

  • Equity investments continued to show a strong trend. However, bank credit growth remained subdued. Corporate bond issuances on the other hand have shown higher flows.

Potential challenges for growth

  • Supply chain bottlenecks have led to global commodity prices increasing rapidly. This has caused some concern and in future it can affect growth as high prices affect profitability, hit the consumer demand and lead to increased inflation.
  • While the COVID-19 crisis led the fiscal and monetary policies to be expansionary, the RBI has indicated it would likely look to normalize the monetary policy especially with inflation continuing to remain relatively high. Potential tightening of liquidity and increase in interest rates, if implemented, could be a short-term challenge for the economy. 

The Government’s focus on vaccinations is welcome. With continuing push from the Government on attracting investments and also strengthening the existing businesses, we hope that the economy manages to hit a rapid growth trajectory in coming quarters.

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