Cause for optimism as our economy livens up 

What is the news? 

Recent tax collections are reported to be bright enough for India’s government not to raise money from the market to honour its GST-gap funding commitment of almost ₹1.6 trillion to states.  The Centre laid out a plan to borrow only ₹5.03 trillion in the second half of 2021-22, on top of the ₹7.02 trillion raised in the first six months. It is thus abiding by its budgetary target of ₹12.05 trillion for the full year.  

What is the cause for optimism at this point? 

Besides dropping covid cases, revival in economic activity reflected in our tax collection is the reason for optimism. 

What are the indications of an economic revival? 

– From a production perspective, the purchasing managers’ index in August went above its five-year average, as did growth in rail freight traffic.

– Our trade balance improved, labor-intensive exports rose, and India logged an import cover of 14.5 months, even as the rupee gained a bit on the dollar. 

What is the status of India’s export and how we can improve it further? 

First, India’s export is rising. It settled above $30 billion. There is post-pandemic surge of demand likely in rich export-markets and global moves underway to diversify supply chains away from China. Thus, we have a chance of export-led expansion that we must not miss.  

Second, logistical and duty-related hurdles need to be done away with, processes eased and trade deals sealed. The export competitiveness is an edge that calls for enhanced quality-control by exporters and low-cost production in US-dollar terms.

A needlessly strong rupee, pushed up by investment inflows rather than an export surplus, could leave some ‘Made in India’ offerings out of reach and limit our ability to maximize overseas gains.  

Third, our Central bank allows our currency to float but not allow volatility in its exchange rate beyond a point. This is consistent with market practices that meet US approval. Yet, conversion rates moved by capital flows, instead of imports and exports, interfere with trade adjustments. A promise of mutual benefit can justify action to achieve a stable export market. 

Source: This post is based on the article “Cause for optimism as our economy livens up” published in Livemint on 30th Sep 2021.