Category: Economy

Persistently high inflation fanned in part due to supply side disruptions along with seasonal factors led the Reserve Bank of India to maintain the key lending rates.

Accordingly, the Monetary Policy Committee of the central bank in its penultimate meet for 2020, decided to maintain the repo rate – or short-term lending – rate for commercial banks, at 4 per cent.

Besides, the reverse repo rate stands unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the ‘Bank Rate’ at 4.2 per cent.

The MPC voted to maintain accommodative stance, thus opening up possibilities for more future rate cuts.

It was broadly expected that the RBI’s MPC might hold rates as recent data showed that retail inflation has been at an elevated level during June.

“The MPC evaluated domestic and global macroeconomic and financial conditions and voted unanimously to leave the policy repo rate unchanged at 4 per cent,” RBI Governor Shaktikanta Das said.

“It also decided to continue with the accommodative stance of monetary policy as long as necessary – at least during the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward.”

Also Read: India’s Real Estate Sector Limping Back: Report

Continued focus on reform measures ushered in by the government even as the country faces one of its toughest crises during the pandemic, will trigger a faster recovery of the economy with the industry reposing confidence of a bounce back sooner than expected, Confederation of Indian Industry (CII) president Uday Kotak said.

Talking about the state of the economy post the unlock phase, Kotak said there was now a big departure from the depressed mood that had gripped the industry during the early stages of lockdown.

“The industry now sees their sectors seeing a better pick up and capacity utilisation than what they had projected in March 2020. While in the first few weeks post the lockdown, the pickup was attributed to pent up demand, the sustenance of demand particularly in some non-essential sectors have lifted hopes of a faster recovery,” he said.

The CII president said that the determination by the government to meet the challenges by pushing through some long pending reforms like the labour reforms and those for the farm sector apart from the call for an Atma Nirbhar Bharat have helped improve the confidence of the industry.

With the further easing of restrictions and successive unlocking of the economy initiated from June, most of the high frequency data points have shown a continued normalisation in activity levels, as compared to the multi-year lows seen in April.

“The robust performance of merchandise exports can be largely ascribed to the industrial units being able to function with greater capacity in September, as restrictions on mobility were eased and local lockdowns were fewer. Slowly improving global trade is also helping on the margin,” said Kotak.

The fewer localised lockdowns have also resulted in the industrial activity now moving into an expansion territory. On a sequential basis, manufacturing purchasing managers index (PMI), which is a widely tracked indicator of business activity jumped to 56.8 in September – a eight year high – from a low of 27.4 seen in April.

“This is indicative of the fact the manufacturing sector is slowly but steadily moving towards stabilization and portends well for the recovery prospects of the critical sector,” Kotak added.

The improvement has also been seen in services PMI, with the index value recuperating from a low of 2.0 in April 2020 to 49.8 in September. The improvement seen in domestic PMIs is broadly been in line with the recovery process seen in global PMIs as well.

Among the specific manufacturing sectors, significant improvement in construction equipment has been witnessed after poor performance in April.

After a 30 per cent jump in sales in July, August was one of the best in 40 years. Big demand from the rural sector and investments flowing into the rural sector are translating into sales.

The sales of passenger vehicles have also bounced back to record a year-on-year growth of 14.2 per cent in August, which might get a further boost due to the forthcoming festive season. The improvement in sales of construction equipment and passenger sales point towards recovery process in investment and consumption respectively which has been set in motion.

“This year, the agriculture sector has emerged as a beacon of hope for India’s economy, with a normal and largely well-distributed monsoon and record food-grains production cushioning the rebooting of the economy. A concerted action plan from the government to support the rural sector in the form of Agri-Infrastructure Fund and other key reforms in the sector have also supported the sector”, highlighted Kotak.

While agriculture does not have the heft to offset the sharp contraction in non-agricultural sector (accounting for 85 per cent of GDP), it punches more than its weight in GDP – its share in employment remains the highest at 44 per cent and is a critical supplier of much-needed nutrition during the pandemic. The high frequency indicators in the sector, such as fertiliser sales, tractor sales have all shown an improvement in September over the lows seen in April.

Specifically, the tractor industry is now producing at full capacity with bullish sentiment across villages. The tractor sales have recorded an impressive jump over the months, with August seeing a jump of 75 per cent from -79 per cent in April. However, the supply chain disruptions are still a cause for concern.

The bulwark of the economy, the services sector has shown some encouraging signs of recovery as well. With a contribution of over 60 per cent in GDP, for the economy to stage any meaningful bounce-back, the services sector must take the lead.

Despite Covid-19 inflicting deep pain in certain sub-sectors of services like tourism, hotels & hospitality, aviation among others, early signs from the sector are pointing towards resurgence in a few pockets.

For example, railway freight traffic improved 15 per cent in September, with further improvement expected in the subsequent months due to growth in movement of goods on the National Highways.

The latter also resulted in electronic toll collections picking up pace to Rs 17.1 billion in August 2020 from Rs 2.5 billion seen in April 2020.

“Though still early, these are indeed promising signs, pointing towards some semblance of a recovery process taking shape in the various sectors. Going forward, we expect economic activity to continue to normalise further in the coming months,” added Kotak.

Specifically, resilience in the rural economy, helped by a buoyant monsoon season and government spending coupled with an accommodative monetary policy environment is expected to cushion economic activity.

However, our expectation hinges on the fact that there will be no second wave of the pandemic in the ensuing months, he said.

Also Read: India’s Real Estate Sector Limping Back: Report

Also Read: India’s Real Estate Sector Limping Back: Report

The Indian real estate sector seems to be recovering from a slump in demand during the nationwide lockdown as sales during the July-September quarter jumped over 100 per cent on a quarter-on-quarter basis across seven major cities, according to a report by PropEquity.

Housing sales across these seven cities during the third quarter of 2020 stood at 50,983 units, compared with 24,936 units in the previous quarter.

NCR-Delhi witnessed 295 per cent home sales growth in Q3, while other cities like Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region, and Pune clocked 86, 131, 159, 89, 70, and 72 per cent respectively.

However, on a year-on-year basis, sales fell by 35 per cent and new launches were down by 30 per cent.

“The Indian real estate sector is showing some recovery as many projects were launched in the last quarter. With various schemes and offers, developers were able to clear significant inventory. As we move into the festive season, we forecast this recovery to continue with more offers, discounts, and attractive payment schemes to attract more customers,” Samir Jasuja, Founder and Managing Director at PropEquity, said.

Speaking on the National Capital Region market, Ankush Kaul, President of Sales and Marketing at Ambience Group, said: “The NCR market, being one of the biggest in the country, continues to be resilient and presents a new level of optimism to the industry. Being well-supplied across all segments of housing, it caters to all categories of home buyers like those seeking affordable, premium, or luxury homes. This remains the biggest USP of this market. On account of the upcoming festive months, it is likely that the sector will see a further revival in terms of sales numbers.”

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