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Indian Economy Updates: September 2020

  • Finance Ministry states that Indian economy is experiencing a V-shaped recovery. Factors like tractor sales, e-way bills, GST collections, power consumption, etc. led to such a pattern.
  • Agriculture sector grew at 3.4% in Q1 of 2020-21 as compared to 3% in Q1 of 2019-20 and boosted economic growth. Service sector worst hit due to decline in global demand.
  • Bank of Baroda, Bank of India, Canara Bank and Union bank of India ratings downgraded by Moody. This was because Covid-19 might weaken borrowing credit profiles and affect bank’s asset quality.
  • According to Moody, there is a rise in non-performing loans because of prolonged financial stress, weak job creation and credit crunch.
  • In Q1, the consumer spending and investment declined significantly but the government spending grew by 16%.
  • The fall in the output of eight core sectors decreased by 9.6% in July due to liquidity crisis and labour shortages during lockdown.
  • Gross value added of agriculture and allied sectors grew by 5.7% in Q1 of 2020-21 as compared to 8.6% in Q1 of 2019-20.
  • Agricultural inflation was 2.3% in Q1 of 2020-21 as compared to 5.6% in Q1 of 2019-20.
  • Industrial production further contracted by 10.4% in July 2020, which was slower than in June (16.5%), April (57.6%).
  • All the components of Index of Industrial Production (IIP), which are mining, manufacturing and electricity experienced a contraction.
  • Mining activity fell by 13% in July as compared to 19.8% in June, electricity experienced 2.5% fall in July as compared to 10% in June. Capital goods segment contracted by 22.8% in July 2020 and 37.4% in June 2020 and 90% in April 2020.
  • India’s ranking in Economic Freedom is now 105 out of 162 countries in 2018, while in 2017 the same was 79 out of 162 countries. The data was released by Centre for Civil Society in collaboration with Canada’s Fraser Institute. The indicators of the index are namely: 1) Freedom to trade internationally (India’s rank: 2018- 139, 2017-137), 2) Regulation (India’s rank: 2018-122, 2017-114), 3) Size of the government (India’s rank: 2018- 54, 2017- 36), 4) Legal System and Property rights (India’s rank: 2018-79, 2017 – 79), 5) Sound money (India’s rank: 2018 – 88, 2017 – 89). The index is marked on a scale of 10, closer to 10, more is the economic freedom.
  • The budgetary spending till August 2020, India has spent 1.2% of its GDP. Mexico and Turkey are the only two countries who have spent less than India amongst the 20 major countries in the world.
  • CRISIL has estimated that the GDP in the financial year of 2020-21 will contract by 9% because of uncertainty regarding the spread of Covid-19 and lack of adequate fiscal support from the government. CRISIL suggested that the government should increase the fiscal expenditure and provide support to vulnerable households and small businesses hit hard by the pandemic.
  • Consumer Price Index (CPI) in August 2020 is 6.7% while the same in July 2020 was 6.73%. India is now experiencing a situation of low growth and high inflation. WPI rose by 0.16% in August 2020. In case of manufacturing goods, WPI is 1.3% (as in August 2020). The rise in manufactured food products rose at a rate of 4.7%.
  • Food inflation increased by 3.8% in August 2020. The growth rate of food inflation was higher in July 2020 (4.1%). This downtrend was mainly due to fall in prices of cereals, pulses, vegetables and milk.
  • The Central government has proposed an additional expenditure of Rupees 1.67 trillion in the financial year 2020-21 to recapitalise banks, fight covid-19 and also to support welfare schemes announced by the government. This expenditure will increase the fiscal deficit to 7.4% of GDP in 2020-21.
  • Standard and Poor’s has estimated that the fall in GDP of India in 2020-21 will be 9% due to rising covid-19 cases and a consequent fall in the private spending and investment.
  • Pradhan Mantri Matsya Sampada Yojana (PMMSY): A flagship scheme to focus and encourage sustainable development of fisheries sector in India. An initial investment will be to the extent of Rupees 20,050 crores spread over its implementation period from 2020-21 to 2024-25. This scheme is a part of Aatmanirbhar Bharat.