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‘Strong economic recovery’

▪ Core industries grew by 11.6% in Aug v/s 9.9% in Jul. Growth got a boost on favorable base -6.9% in Aug’20. Core industries up by 3.9% over Aug 2019 and -0.3% over Feb 2020.

▪ Cement, electricity and coal sector performed good in Aug.

▪ Next month data to remain crucial as the favorable base effect will erode (core index grew by 0.6% in Sep’20).

▪ Govt's fiscal deficit at 31.1% of Budget Estimate till Aug, an 18-year low.

▪ Revenue receipt rose by 114% compared to 2% rise in expenditure till Aug of FY22

▪ Capex spending remained strong during the period (Capex grew by 15% till Jul of FY22). Meanwhile, it is lower than budget estimate of 35% expansion.

▪ Significant support to fiscal deficit came from tax collections (grew at 60% till Aug of FY22). Tax collection is likely to overshoot Govt FY22 target.

▪ Favorable base and business shift to organized sector post pandemic and demonetization and higher STT due to increased retail participation in equity boost tax income.

▪ Govt expenditure likely to increase in second half with expected increase in fertilizer subsidy, higher allocation to MNREGA and DA hikes

▪ Govt expects fiscal deficit at 6.8% in FY22 compared to 9.3% in FY21

High Frequency Indicators

▪ At Rs1.17 lakh crore in Sep 2021, GST remained above the Rs1 lakh crore mark for the third consecutive month

▪ E way bill generation reached to pre-Covid level at 6.6 cr in Aug 2021 compared to 6.4 cr in Feb 2020

▪ Average Daily Vahan registration in RTO stood at 63,318 in Aug 2021 and 71,091 Jul 2021 as compared to 73,665 in Jan 2020 and 69,185 in Feb 2020.

▪ Cement production up by 36.3% in Aug 2021

▪ Manufacturing PMI rose to 53.7 in Sep from 52.3 in Aug. In Q2FY22, manufacturing PMI averaged at 53.8 v/s 51.5 in Q1FY22. A reading above 50 showed expansion in activity.

▪ India’s foreign exchange reserves crossed $600 bn mark standing at $640 bn in Sep 2021

▪ FDI rose to $22.5 bn in Q1FY22 as against $11.8 bn in year ago period. In FY21, FDI rose to $81.7 bn from $74.4 bn in FY20.

▪ India’s merchandise exports rose to $164 bn in Apr-Aug’FY22, up by 23% over Apr-Aug’FY20 and 67% over Apr-Aug’FY21

▪ Industrial production up by 7.2% MoM in Aug v/s 5.7% MoM in Jul

▪ Manufacturing picked up by 8.2% MoM in Jul thereby reflecting sequential improvement in manufacturing scenario.

▪ Inflation eases to 4-month low at 5.3% in Aug. Sharp decline in food inflation put downward pressure in headline CPI.

View:

Economic activity gained traction during Aug and Sep as indicated by high frequency indicators. Besides strong economic recovery, pick-up in the vaccination pace and contained Covid cases to provide further boost to economic activity. Demand is also likely to get boost with coming festive season. Govt’s enhanced spending on capex, controlled fiscal situation and stable bond market are other positive factors of the domestic economy.

Inflation remained under control despite high fuel prices as impact is offsetting by low food inflation. Though high fuel prices to remain risk for the economy given its multiplier effect on our import intensive economy. Furthermore, slowdown in China, high commodity prices and scarcity of key raw materials like chip shortages and disturbance in coal supply are posing risks to the economy.

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