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India is witnessing a V-shaped recovery, says finance ministry in monthly economic review

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India is witnessing a ‘V’ shaped recovery, the finance ministry said on Friday, pointing to a clutch of indicators such as manufacturing purchasing managers’ index (PMI), auto sales, railway freight, steel and power consumption, e-way bills, highways toll and retail financial transactions.

Relative to advanced nations, the monthly economic review of the ministry for August said, contraction in India’s gross domestic product (GDP) in the April-June quarter has been ‘slightly higher’ but attributed the same to the stringent lockdown in the quarter that has helped keep Covid-19 mortality in check.

It flagged areas that may require specific attention including agrarian supply chains, factor markets, infrastructure, Information and communications technology (ICT), start-ups, financial inclusion, skilling and health care.

With regards to India’s record growth contraction of -23.9% in the first quarter of the fiscal, the report termed it an inevitable result of the lockdown, citing the Oxford Covid-19 government response tracker which ranked India’s lockdown as the most stringent in the world.

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Further, the lockdown enabled the country to restrain its pandemic-induced death rate to one of the lowest in the world, it said. India’s case fatality rate was 1.78% as on August 31, compared to 3.04% and 12.35% in the US and UK respectively.
The report was optimistic in its outlook, stating that the worst was behind us as high frequency indicators were showing improvements since June.

“The trend in macro-economic indicators elucidated above establishes that India is well on its path to a V-shaped recovery,” the report said.

India’s manufacturing purchasing managers’ index (PMI), at 52.2, moved into the expansionary zone in August for the first time since the lockdown. Similarly, e-way bills touched Rs 13.8 lakh crore last month, reaching 97.2% of the figure for August last year.

The report suggested a calibrated re-orientation of India’s policy matrix towards building resilience for an uncertain future while specifying priority areas for policy action.

“Agriculture has emerged as a resilient silver lining in the current scenario,” it said, recommending policy priority in building efficient and sustainable agrarian supply chains for a persistent increase in farmer incomes.

While the manufacturing sector was showing signs of recovery, the report advised wide-ranging structural reforms in land, legal, labour and capital markets to reverse the slowdown and to boost risk appetite.

For the financial sector, the report cautioned of its disconnect with the real sector due to a global liquidity surplus.

“Possible risks of disruptive market corrections may manifest in terms of capital flight, currency volatility and ensuing worsening of balance-sheets of firms, posing negative macro-implications for global labour markets as well,” it said.

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