Country witnessing V-shaped restoration; stringent lockdown led to steep contraction of financial system: FinMin report

New Delhi, September 4

The Finance Ministry on Friday mentioned the nation was witnessing a V-shaped financial restoration and attributed the steep 23.9 per cent contraction of the financial system within the June quarter to “stringent lockdown” that was put in place to curb spreading of coronavirus infections.

Among the main economies, India witnessed the steepest decline within the GDP progress within the April-June quarter following the outbreak of the coronavirus pandemic.

“The higher contraction has resulted from the stringent lockdown that India enforced in the April-June quarter. India enforced the most stringent lockdown as reflected in the Government Response Stringency Index developed by Oxford University,” the Ministry mentioned in its Monthly Economic Review for August.

The US financial system contracted by 9.1 per cent whereas the UK and France witnessed a contraction of 21.7 per cent and 18.9 per cent, respectively. Spain, Italy and Germany noticed their economies contract 22.1 per cent, 17.7 per cent and 11.Three per cent, respectively, within the June quarter, as per the report.

Euro space registered a contraction of 15 per cent whereas the Japanese financial system contracted 9.9 per cent. Relative to those superior nations, India’s GDP contraction at 23.9 per cent is barely increased, the report mentioned.

On the constructive aspect, the report mentioned that stringent lockdown has enabled India to restrain the pandemic-induced dying price to be one of many lowest on the planet. India’s case fatality price was at 1.78 per cent as on August 31 as in comparison with 3.04 per cent within the US, 12.35 per cent within the UK, 10.09 per cent in France, 1.89 per cent in Japan and 13.18 per cent in Italy.

Further, the report mentioned the nation was witnessing a V-shaped sample of restoration as is seen in numerous high-frequency indicators.

“The indicators are auto sales, tractor sales, fertiliser sales, railway freight traffic, steel consumption and production, cement production, power consumption, e-way bills, GST revenue collection, daily toll collections on highways, retail financial transactions, manufacturing PMI, the performance of core industries, capital inflows and exports,” it added.

India’s manufacturing Purchasing Managers’ Index (PMI) at 52.2 moved into the expansionary zone in August for the primary time because the lockdown, presenting much-required restoration prospects for the manufacturing sector, it added.

Since May, agriculture has persistently been the brightest spot within the revival of progress, the report mentioned, including that industrial manufacturing is displaying particular indicators of restoration with year-on-year progress in eight core industries output displaying a smaller contraction in July than in June.

On the again of strong FDI and FPI inflows and financial savings from tepid imports, foreign exchange reserves, as on August 21, have risen to an all-time excessive of $537.5 billion. These are able to financing greater than 13 months of imports, ought to the necessity come up from a surge in actual sector exercise, the report mentioned.

“The domestic space is flushed with high systemic liquidity. A system flushed with liquidity is a system ready to absorb a surge in real sector activity which is reflected in the 10-year benchmark bond yields declining from 6.55 per cent at end-April to 6.12 per cent at end-August, and narrowing of spread in yields of 3-year AAA-rated corporate bonds and equivalent government securities from 246 basis points in end-April to 55 basis points in end-August,” it mentioned.

As per the report, the world after COVID-19 will probably be totally different with structural adjustments in manufacturing, consumption and work patterns.

As India emerges from this disaster, will probably be essential to re-orient the nation’s coverage matrix in direction of a calibrated reconstruction of the financial system and constructing resilience for an unsure future, it famous.

The report mentioned some areas which will require particular consideration embrace agrarian provide chains, issue markets, infrastructure, ICT, start-ups, monetary inclusion, skilling and well being care and progress in these areas will sustainably increase financial progress in years to return.

According to the report, deep-seated and wide-ranging structural reforms in land, authorized, labour and capital markets to reverse the slowdown in manufacturing and to spice up threat urge for food are pertinent on this regard.

This warrants fast-tracking of the prevailing authorities initiatives within the issue market house. Government has additionally supplied a obligatory push to focused mega infrastructure tasks as a part of the National Infrastructure Pipeline to reignite the manufacturing sector, it mentioned.

In the face of unprecedented pandemic-induced job losses, the employer-employee relationship additionally calls for structural adjustments, the report mentioned, including that transferring away from mounted job roles, and engendering function flexibility within the workforce will allow companies to higher meet post-pandemic challenges.

Skilling, upskilling and reskilling of the labour pressure is pre-eminent to allow it to be better-prepared and adaptive to the altering enterprise surroundings, it mentioned.

The report additionally famous that to strengthen India’s place in rising world worth chains amid altering commerce dynamics, re-aligning coverage incentives in favour of labour-intensive export sectors is a urgent want.

In addition, the report mentioned that India must anchor its strengths within the space of generic medication and prescribed drugs exports and regain its market share in energetic pharmaceutical substances.

India can emerge as one of many forerunners in supporting simple, inexpensive and equitable entry to the COVID-19 vaccine as and when it’s obtainable to manage, it added. PTI

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