A latest update from the Finance Ministry noted yesterday that a steady contraction of active COVID-19 cases and a low case fatality rate has instilled measured optimism in India that the worst is behind us. At the same time, a second wave of the pandemic in advanced nations is a grim reminder of how reality hits back when caution is compromised. From a trickle in not so distant past to now a sea of humanity coming out on the streets, the people of India have embraced the new normal where self-protection is inseparable from economic activity. The sustained surge of activity levels in India, itself, is a reflection of a relatively more manageable pandemic situation in the country as compared to advanced nations.
Movement of high frequency indicators in October clearly point towards broad based resurgence of economic activity, notably in healthy Kharif output, power consumption, rail freight, auto sales, vehicle registrations, highway toll collections, e-way bills, rebound in GST collections and record digital transactions. Rural consumption has stayed strong, in part helped by sustained MSP procurement of food grains by government at higher prices.
Manufacturing Purchasing Managers' Index rose from 56.8 in September to 58.9 in October, pointing to the strongest improvement in the health of the sector in over a decade. PMI Services index also rose to 54.1 in October, ending the seven-month sequence of contraction, signalling improved market conditions. With the onset of the festive season, overall consumption is expected to see further uptick in the coming months enhancing prospects of faster economic normalisation.
Prospect of economic normalization is also evident in the external sector indicators with consumption of petroleum products increasing in September and exports rebounding strongly with a year-on-year positive growth for the first time in last 7 months. October witnessed some moderation in exports growth, primarily driven by weak oil exports. Not surprisingly, cargo traffic volumes have almost reached previous year levels in September driven by healthy growth in traffic of iron-ore, finished fertilizers and containerized cargo.
India stands poised to recover at a fast pace and reach pre-COVID levels by the end of the year - barring the incidence of a second wave that may be triggered by the fatigue with social distancing. The continuous improvement in forward looking RBI indices of consumption and business sentiment for the next year augurs hope of a strong economic rebound. This is also corroborated by IMF's October 2020 projection of 8.8 per cent real GDP growth of India in FY 2021-22, highest globally.
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