The Covid-19 outbreak that had an unprecedented impact across all sectors of the economy, has significantly changed the economic landscape of the country.
However, with the easing of the lockdown and resumption in economic activity, some green shoots are visible in the economy, that will help pave the way for a gradual but strong economic recovery.
Agriculture
India’s revival might well be led by India’s rural sector, with the sector receiving more than abundant rains during June 2020, which was the wettest month ever since 2013, as per the India Meteorological Department (IMD).
During June 2020, overall rainfall was 118%, which was 15% above normal and thus considered excess rainfall. Therefore, with an uptick in farming and sowing activities, the agricultural sector would be a source of stability for the Indian economy, offsetting partially the losses from other badly hitsectors such as tourism and aviation.
A better than normal monsoon is also expected to boost employment in the rural sector.
Further, tractor sales, considered a major barometer of the health of the rural economy, registered strong growth, owing to a quick resumption of agricultural activities post lockdown. A robust Rabi harvest owing to a good monsoon, along with several Government initiatives boosted the sales, also aiding in the recovery of the auto sector.
Manufacturing
With the Government easing the curbs that were imposed During Unlock 1.0to slow the spread of the virus, manufacturing activity has also gathered momentum.
During the months of May and June, strong growth posted by economic indicators such as fuel consumption, electricity usage, volume and value of retail transactions, e-way bills, highway toll collections and rebound in movement of goods across the country to pre-covid levels, indicate early signs of recovery.
Consumer facing sectors such as pharma and FMCG are likely to recover faster than some other sectors.
GST Revenues
While the GST revenues were substantially impacted due to the pandemic, a recovery in GST revenues have been underway during the last three months. The GST collection for the month of April stood at Rs 32, 294 crores, increasing to Rs, 62,009 crores during the month of May and further rose to Rs. 90, 917 crores during the month of June.
The rise in revenue collection indicates a revival in business growth, which is expected to pick up further in the coming period.
Exports
The Covid-19 pandemic led to a major slowdown in world tradeand also affected Indian exports adversely over the last few months. Indian merchandise exports growth dipped sharply, recording a negative growth rate of 35% during March, further falling to 60% during April and to 36.47%in May.
However, with the opening of sectors and resumption of economic activity, Indian exports are on a recovery path. Indian exports substantially increased during the month of June, arresting the decline in growth rates of earlier months. During June, export growth stood at (-) 12.41%. The recovery is largely driven by a rise in oil exports, iron ore shipments and pharmaceutical products.
Source: PIB Press Releases
The upward trend in exports is expected to continue with the pick-up in economic activity and easing of logistical issues.
Services
The Indian services sector also showed some signs of improvement during the month of June with transport services, financial services and IT services gaining some momentum.
However, the sector still continues to face headwinds as other service activities such as tourism, hotels, construction, aviation continue to be severely stressed.
While several economic indicators are showing some signs of improvement, it is imperative that policies and incentives are in place to enhance the competitiveness of these sectors.
For boosting national competitiveness, ease of doing business reforms must continue with special focus on time bound approvals, expanding coverage of the Single Window System (SWS), rationalization of stamp duty, among others. A strong role is to be played bythe State Governments that focuses on promoting identified goods and services for exports.
To ensure the cost competitiveness of the identified products, overall cost of doing business across sectors must be reviewed and analysed against global benchmarks to understand underlying issues.
At the same time, India’s export capabilities must be harnessed through trade facilitation measures to improve efficiency and transparency while addressing the various procedural bottlenecks. Greater digitization of procedures along with simplification of processes and, augmentation of risk-based assessment system is required to reduce transaction costs as well as dwell time at ports. Other measures such as export financing, adequate trade infrastructure and certification facilities are also critical for improving sectoral competitiveness.