Indicators point to economic recovery, but revival may be fragile: Brickwork

โ€˜Govt. should address supply chain disruptions, augment aggregate demandโ€™

After six months of severe stress triggered by the toughest lockdown so far, some high-frequency indicators point towards economic recovery but there are signs that this revival is fragile, Brickwork Ratings said.

It estimated that the economy is likely to contract by 13.5% in the second quarter (July-September), and the contraction in FY21 is likely to be about 9.5% unless the government takes immediate initiative to revive the economy. โ€œAfter six months of severe stress triggered by the severest lockdown so far, there finally is some good news on the economy,โ€ it said in a report.

The manufacturing PMI has shown a sharp increase from 52 in August to 56.8 in September, the highest in eight years. GST collections at โ‚น95,480 crore in September have recovered to increase by 3.8% from last year and were higher than August collections by 10%. Passenger vehicle sales had increased by 31%, while railway freight traffic showed a 15% rise.

Exports growth

After a gap of six months, merchandise exports registered 5.3% growth, driven by outbound shipments of engineering goods, petroleum products, pharmaceuticals and ready-made garments. There was an increase in power demand and generation as well.

โ€œHowever, there are indications that this recovery is fragile. Capital expenditure on new projects declined by 81% in the second quarter… showing a continuous declining trend in investments,โ€ the agency said.

Also, the core sector contracted 8.5% in August.

โ€œThe immediate task the government has to address is the removal of supply chain disruptions and augment aggregate demand to lift the economy out of the morass,โ€ Brickwork Ratings said.

โ€œThis requires the government to initiate measures to increase public spending,โ€ it said. โ€œIt should be less dogmatic on fiscal targets.โ€


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