Coordinated response needed to revive economy - Hindustan Times
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Coordinated response needed to revive economy

Hindustan Times, New Delhi | By
Sep 05, 2020 08:35 AM IST

PMI for services showed a flattening in July. It improved marginally to 34.2 from its value of 33.7 in June.

While lockdown restrictions have been eased significantly from July onwards, the continuous rise in the number of Covid-19 infections has led to a continuous deterioration in consumer sentiment. This was clearly seen in RBI’s latest consumer confidence survey conducted in the month of July. Given anecdotal accounts of income and job losses, this is not very surprising. The worsening economic outlook, according to experts, will generate additional headwinds for consumption demand as households increase precautionary savings.

Customers interact with a shopkeeper at a garment store in Old Delhi.(PTI)
Customers interact with a shopkeeper at a garment store in Old Delhi.(PTI)

High frequency indicators also suggest that some of the recovery seen in June might have been the result of pent-up demand due to the lockdown in April and May. For example, the Purchasing Managers Index (PMI) for manufacturing fell from 47.2 in June to 46 in July.

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PMI for services showed a flattening in July. It improved marginally to 34.2 from its value of 33.7 in June.

This number was 12.6 in May. A PMI value less than 50 signifies contraction in economic activity. To be sure, the index of eight core sector industries contracted at a slower pace in July (9.6%) than in June (13%).

The collapse in consumer sentiment and continuing uncertainty about production activity due to localised lockdowns makes it imperative that the governments provides a fiscal stimulus to boost the economy, said experts.

What we are witnessing is a crisis in the entire economy, so we must have a co-ordinated response.

The Centre has not played its part in leading on this front, said Pranab Sen, India’s former chief statistician.

While it is important that the fiscal response is timed well and distributed carefully across sectors to achieve the maximum impact, the Centre must come out with a clear road map to boost sentiment without delay, he added.

Prospects of a co-ordinated fiscal stimulus will become difficult given the disproportionate hit to finances of state governments.

Finance minister Nirmala Sitharaman said last week that the GST Council expected a shortfall of Rs 2.35 lakh crore in GST compensation cess collections in the current fiscal year.

The states can borrow Rs 97,000 crore out of this amount as an interest free loan, but they will have to pay interest if they want to borrow the entire amount , the Centre has said.

State government expenditure was 1.5 times the money spent by the Centre in 2019-20, according to Centre for Monitoring Indian Economy’s database.

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  • ABOUT THE AUTHOR
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    Roshan Kishore is the Data and Political Economy Editor at Hindustan Times. His weekly column for HT Premium Terms of Trade appears every Friday.

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