India’s infrastructure output slumped 23.4% in May though lower than April’s 37% decline, signalling a bottoming out as the country gradually limps back to normalcy from a prolonged lockdown that has pummeled the domestic industry.
This as the country’s fisc showed increasing signs of stress while the current account turned positive in the March quarter on the back of lower imports.
May was the third straight month of decline in core sector data, comprising eight infrastructure sectors. Only fertilisers recorded an increase with a 7.5% rise in production. The core sector data issued by the industry department showed large declines in output in sectors such as steel (48.4%), cement (22.2%), electricity (15.6%) and refinery products (21.3%).
This was in line with expectations of most economists that April will be the worst hit due to the nationwide lockdown to contain the coronavirus outbreak while things will start to look up from May onwards.
Prime minister Narendra Modi and chairman of the 15th Finance Commission NK Singh have earlier said that multiple green shoots of recovery are visible in the economy citing fertiliser production and auto sales data, and robust employment print. The manufacturing Purchasing Manager’s Index (PMI) released by IHS Markit earlier this month stood at 30.8 in May, slightly better than April’s 27.4 but still well below the 50 mark that divides contraction from expansion.
The gradual recovery was seen for instance in Maruti Suzuki India Ltd which sold 18,539 vehicles in May after failing to sell a single unit in the preceding month. India’s top carmaker reopened two of its plants in a phased manner last month after the government eased lockdown curbs. Meanwhile, the unemployment rate declined sharply in recent weeks, coming close to the pre-lockdown levels, according to the Centre for Monitoring Indian Economy.
Global rating firms however continue to keep their dim projections for the Indian economy this fiscal. Fitch Ratings, said in its latest Global Economic Outlook (GEO) on Tuesday, that it still expects India’s GDP to contract by 5% in FY21. “In India, where authorities imposed one of the most stringent lockdowns globally to try to halt the spread of the virus, measures are being relaxed only very gradually; with a limited policy easing response and ongoing financial sector fragilities, we have pared our 2021 forecast to 8% from 9.5% in the previous GEO,” it said.
Data issued separately by the Controller General of Accounts (CGA) on Tuesday showed the fiscal deficit breached 58.6% in the first two months of FY21 against 52% in the same period a year ago. With a severe squeeze in revenue receipts amid a marginal contraction in total spending, the fiscal deficit widened to ₹4.7 lakh crore during April and May, hinting at a very difficult fiscal year amid rising demand for resources to fight the Covid-19 pandemic. Prime minister Narendra Modi on Tuesday announced extension of free ration to 80 crore Indians for another five months at a cost of ₹90,000 crore which would put additional pressure on the fisc.
India’s current account balance recorded a surprise marginal surplus at 0.1% of GDP in the March quarter, compared with a 0.4% deficit in the December quarter, after a gap of 12 years because of lower trade deficit and higher remittance inflows, data released by the Reserve Bank of India showed. Current account deficit in FY20 narrowed to 0.9% from 2.1% in FY19 on the back of shrinking trade deficit.