By Nitya Chakraborty
The Reserve Bank Governor Shaktikanta Das’s projection about the trends in the Indian economy in the remaining four months of the current fiscal, has some sense of objectivity about the sectoral pattern of the industry’s operations but the analysis has some false sense of complacency about the possibility of immediate recovery.
The RBI chief was frank on Friday in admitting that the signs of recovery are far from being broad-based and are dependent on sustained policy support. On the basis of this, he expects a 0.1 positive growth rate in the third quarter and 0.7 per cent in fourth quarter which will bring down the contraction level to -7.5 per cent in fiscal 20-21 as against earlier projected -9.5 per cent.
This projection of downward contraction in the current fiscal is possible if there is a step up of demand in general and that can only be done by transferring funds to the vast masses of people who are most stressed financially at the continuing pandemic. Despite consistent advice by the leading economists in the country ass also the instances in some of the developed countries, the Narendra Modi government has refused to implement this direct transfer of fund programme and has continued with its bank loans assisted schemes which have not really helped in a substantial manner the efforts for revival of demand.
As the latest study by the CMIE indicates the index of core industries (ICI) declined year on year by 2.5 per cent during October 2020 and this is a bad sign after the easing of lock down and the starting of economic activities since this has taken place on a low base of October 2019 when the ICI had contracted by 5.5 per cent in a similar comparison. There was no lockdown then but the activities got disrupted due to slowdown
The ICI have been improving steadily since May 2020 as the extent of decline compared to the past has been reducing. This had helped the ICI almost reach its year-ago level in September. But, in October 2020, the ICI’s growth compared to September 2020 was lower than the growth achieved similarly in 2019. As a result, the ICI in October 2020 is again markedly lower than its year-ago level.
This y-o-y contraction seen by the ICI was largely led by refinery products, followed by crude oil and natural gas. Steel production growth also slipped back into the negative territory, after turning positive in September 2020. Of the remaining four sectors, coal and electricity reported a double-digit growth, while performance of steel and fertilisers was modest in October 2020.
Refinery products’ output fell y-o-y by 16.9 per cent in October 2020. This was steeper than the 9.5 per cent fall registered in September 2020. Oil refiners went slow on production as retailers had ample stocks carried forward from September. This was particularly true of diesel. The festive season, however, sprung a positive surprise. Refinery products’ consumption went up y-o-y by 2.5 per cent in October. Diesel, which lagged behind its peers in terms of consumption recovery, saw its sales rise for the first time since the lockdown in October. In fact, the rise witnessed in diesel sales was quite healthy at 7.4 per cent. Overall crude-processing rates at oil refineries in India inched closer to 90 per cent, rising steadily from 76 per cent in August 2020, as per a report in the Mint dated October 14, 2020.
As the CMIE analysis shows crude oil and natural gas sectors reported y-o-y decline in output of 6.3 per cent and 8.6 per cent, respectively, in October 2020. These sectors have been suffering from supply-side constraints for over a decade, thus witnessing a severe shrinkage in their size. Average monthly production of crude oil shrank gradually from 3.17 million tonnes in 2011-12 to 2.68 million tonnes in 2019-20 and further down to 2.56 million tonnes during April-October 2020. On a similar comparison, average monthly output of natural gas contracted from 3,873 million cubic metres (MCUM) in 2011-12 to 2,521 UCUM last year and 2,263 MCUM in the current fiscal.
According to the ICI data, steel production fell y-o-y by 2.7 per cent in October 2020, after having surpassed its year-ago level by 2.8 per cent in September 2020. But, data released by the Joint Plant Committee (JPC) shows production of both, crude steel and finished steel recorded y-o-y growing by 0.9 per cent and 0.4 per cent, respectively, in October 2020. Top steelmakers JSW and SAIL reported a healthy growth in production and also sales. Ironically, the Ministry of Commerce which releases the ICI, quotes JPC as the source for its steel production data.
Coal output grew to 56.2 million tonnes in October 2020 from 48.6 million tonnes in September 2020. Coal India (CIL) reported an 18.9 per cent jump in its output in October 2020. Till July this year, CIL’s average monthly output had remained 9.7 per cent below its year-ago level. The output started improving from August 2020, marking an impressive y-o-y increase of 18.7 per cent till October 2020, albeit on a low base caused by floods last year. According to media reports, coal sales by CIL through e-auction rose by a whopping 190 per cent to 16.8 million tonnes in October 2020. The demand came majorly from power sector.
Electricity generation grew y-o-y by 10.5 per cent in October 2020. The growth came on a low base of October 2019 when generation had contracted by 12.2 per cent. Sequentially, generation fell in October 2020 to 117.7 billion kwh from 121.6 billion kwh in September 2020. While the apparent quantum of contraction may not be high, it looks quite significant when we consider that October has 31 days as compared to 30 days in September. Also, October 2020 was the third warmest in the last 50 years, as per the India Meteorological Department (IMD). This should have ideally resulted in higher demand for electricity from the household sector. But, energy requirement in India declined to 109.7 billion kwh in October from 112.5 billion kwh in September, according to the data released by the Central Electricity Authority (CEA).
The deterioration in overall performance of core industries seen in October 2020 raises concerns over the sustainability of the steady recovery the economy has seen since the lockdown. There is an added problem for economic recovery in this period of pandemic- the threat of higher inflation. This threat has constrained the monetary policy at the present structure and the government is not yet sure of how it can ensure further stimulus or other policy support without risking higher inflation.
The fact is that at retail level, the price situation is unbearable. The vegetable prices are so high that even the well off middle class find it hard to continue with their pre pandemic eating habits, what to talk of the underprivileged and the people whose jobs have been affected by the covid. The situation has breached such a pass that ordinary palliatives will not be of any use. Immediate increase in the purchasing power of the people is the only guarantee to ensure faster recovery, there is no other option left. (IPA Service)