Core sector shrinks, fiscal deficit past target

Last Updated 31 December 2019, 19:20 IST

The country ended the year with not so good news on the economic front.

Key macro data points released on Tuesday pointed to a decline of 1.5% in eight key infra sector output in November, while the fiscal deficit in the first eight months of 2019-20 jumped to Rs 8.07 lakh crore as against the annual target of Rs 7.04 lakh crore as the government’s spendings could not keep pace with the revenues earned.

The only silver lining appeared on the headline number of the current account deficit (CAD), which narrowed to 0.9% of GDP or $6.3 billion in July-September quarter from 2.9% or $19 billion in the same quarter last year.

But a close look at the fine print suggested the number was down because both exports and imports have declined in the past eight months but the pace of decline of imports is faster than that of exports, resulting in a narrowing of trade deficit.

“The contraction in the CAD was primarily on account of a lower trade deficit at $38.1 billion as compared with USD 50 billion a year ago,” the Reserve Bank of India (RBI) said.

Current account deficit is the difference between foreign exchange inflows and outflows.

Separately, the numbers released for the fiscal deficit by the government showed it reached 114.8% of the government’s budget estimate for 2019-20. While the government received about Rs 10 lakh crore in revenues, it spent Rs 18 lakh crore.

Fiscal Deficit is the gap between the total expenditure of the government and its total income. Adding salt to the wounds, the year-end data revealed a contraction in eight key infrastructure sectors for the fourth consecutive month in November. However, the rate of contraction in November was slower than a 5.8% decline in October.

The eight infrastructure sector include coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.

On an individual basis, refinery products, fertilisers and cement showed growth, the rest contracted. Core sector has 40% weight in the index of industrial production, the data for which will be released later in January. “While the narrowing in the pace of core sector contraction is encouraging, five of the eight core sectors recorded a YoY decline in November 2019, which paints a sobering picture of the underlying trends,” ICRA Principal Economist Aditi Nayar said.

(Published 31 December 2019, 17:08 IST)

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