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October 13, 2020

The world is witnessing a significant year-over-year (YoY) economic contraction due to the coronavirus pandemic. India’s Gross Domestic Product (GDP) has contracted by 23.9%, higher than developed countries such as the US (9.1%), the UK (21.7%), France (18.9%), Spain (22.1%), Italy (17.7%) and Germany (11.3%). India’s higher GDP contraction was due to the lockdown enforced from April to June 2020. As per the Government Response Stringency Index (developed by the Oxford University), India enforced the most stringent lockdown to restrict death rate to one of the lowest among developed countries. As of 31 August 2020, India’s fatality rate stood at 1.78% compared with 13.18% in Italy, 12.35% in the UK, 10.09% in France, 3.04% in the US and 1.89% in Japan.

According to the Ministry of Statistics and Programme Implementation estimates, from April to June in FY2020–21, India’s GDP growth rate contracted by 23.9% and the economy contracted by 22.8% in terms of Gross Value Added (GVA). The private consumption spending decreased by 26.7%, due to subsequent demand dip for discretionary items. Investment demand dipped by 47.1% due to uncertainties in the wake of the pandemic.

As the country entered the unlocking phase in June 2020, it witnessed a sharp V-shaped recovery. In August 2020, the Manufacturing Purchasing Managers’ Index (PMI) in India stood at 52.2 and moved into the expansionary zone, indicating recovery signs for the manufacturing sector. The agriculture sector shows opportunities for growth due to the increasing rural demand. Registrations for agricultural and commercial tractors increased by 26% to 66,061 in August 2020 over 52,362 in March 2020, strengthening the rural demand. The sector reflects a positive outlook on the back of monsoons. As of 2 September 2020, cumulative rainfall was 9.2% (above the long-period average).

The Government of India has focussed on financial inclusion by adopting digital finance. The digital payment infrastructure created as part of the Jan Dhan–Aadhaar–Mobile (JAM) trinity has enabled a timely fiscal relief response amid coronavirus.

There has been a significant shift towards online payment transactions amid the pandemic. Payments on Unified Payments Interface (UPI) hit an all-time high with transactions worth ~Rs 2.9 lakh crore (US$ 39.73 billion) in July 2020.

Railway freight volume increased to 60.38 million tonnes in August 2020 (up from 56.60 million tonnes YoY). Passenger bookings also increased in July–August from the Northern and suburban regions of the Central and Western zones.

Micro & Medium Small Enterprises (MSME) witnessed significant development in credit growth in June 2020, due to stimulus package of Rs 20 lakh crores (US$ 274 billion) announced by the RBI (Reserve Bank of India) in May 2020. As of 12 August 2020, 32.8% of the total amount (under the scheme) has been disbursed into 2.27 million MSME loan accounts.

Industrial production started to improve slightly from June 2020, thereby reducing the quarterly contraction. Consumer non-durables output posted a double-digit growth, driven by the rising demand and rebuilding of inventories. The first quarter (2020–21) results of sectors such as Fertilisers, FMCG and Pharma reported growth in revenue, operating profit and margins. Some sectors such as Mining, Cement and Cement Products also reported margin improvement in the first quarter of 2019–20, despite revenue dip.

Exports of goods such as food and pharmaceuticals recorded healthy growth in July 2020, driven by the rising global demand.

India’s crude oil price rose to US$ 44.41 per barrel as of 31 August, from US$ 42.98 per barrel as of 31 July. Consumption of petroleum products declined by 3.7% in July 2020 over June 2020 due to factors such as the agriculture sector’s reliance on renewable sources of power during monsoon.

India’s retail inflation rose to 6.93% in July 2020 versus 6.23% (revised) in June 2020 due to 9.62% rise in food prices in July 2020. The rise in inflation is due to the restricted movement of food cargo amid heavy rainfall and re-instatement of lockdowns in many cities, leading disruptions in the supply chain and pricing pressure. Also, factors such as rising transport costs due to increased domestic taxes on petroleum products have also contributed to the inflationary trends. Price stabilisation in crude and retail fuels in August 2020 is expected to soften the incremental pressure on headline inflation.

Some other infrastructure indicators

E-way bills generated Rs 13.8 lakh crore (US$ 189.06 billion) revenue in August 2020, reaching 97.2% of the bills generated in August 2019. Further, the average daily electronic toll collections in 2020 has moved in tandem with e-way bills, reaching 80% of pre-COVID (February 2020) levels in August 2020. The growth in the transactions and electronic toll collections, reaching 80–97% of the pre-COVID and previous year levels, reflects positive externalities from the pandemic.

The GST collections contraction was less in August 2020 (11.9%) compared to 38.0% in May 2020, reflecting an improved growth outlook. In August 2020, GST collections amounted to Rs 86,449 crore (US$ 11.84 billion).

India’s foreign exchange reserves continued to rise to new heights with rise in gold reserves and foreign currency assets. As of 21 August 2020, India’s foreign reserves reached US$ 537.5 billion (increased by US$ 59 in 2020–21) due to rise in FPI and FDI inflows.

The rupee exchange rate (Rs/US$) stood at 73.59 in the last week (as of 31 August 2020), compared to 74.93 in July end (as of 31 July 2020).

Marginal improvement was observed for PMI services index at 41.8 in August 2020 over 34.2 in July 2020.

Note: Conversion rate used for September 2020 is Rs 1 = US$ 0.01370


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