Hopes for second Covid-19 stimulus fading

Hopes are fading for another Covid-19 relief package as the government, which firmly believes a V-shaped economic recovery is taking place, on Thursday cited rising export data for the first week of September and said it expects a similar revival in other high frequency indicators this month.

Officials said the trends in GST collection, e-way bill, manufacturing PMI, railway freight, cargo traffic and power consumption this month were encouraging.

Sources privy to the development told DH there has been no discussion yet on the second tranche of economic stimulus as the government wants to wait and watch the high-frequency indicators, including key infrastructure sectors, which have shown an improvement since June.

“There is also a feeling that the just released KV Kamath committee report, suggesting RBI does a one-time restructuring of sectoral loans, would take away much of the financial burden of various sectors,” said another government source.

This comes at a time when a near 24% decline in the GDP in the April-June quarter has put an undue pressure on the government for a massive fiscal stimulus to the informal sector, because the quarterly GDP numbers do not capture the growth trends in this sector.

Adding more worries, trends in food and other retail sectors suggest that the inflation numbers for August, due next week, could be worse than the previous month’s 6.93%, dousing hopes of any interest rate cut by the Reserve Bank of India in its next monetary policy review in October.

If that happens, there will be no pick up in demand in the festive season beginning next month. Auto makers and other retailers said they were pinning hopes on festive season sales to beat the virus impact on businesses.

“We expect August retail inflation numbers to elevate to 7% or even higher,” State Bank of India Chief Economists Soumya Kanti Ghosh said, adding that a huge upsurge in the pandemic in rural areas has aggravated supply disruptions and posed an upside risk to inflation numbers.

The government on Tuesday conveyed through the release of a data set that India's exports during the first week of September jumped 13.35% year-on-year to $6.12 billion while imports declined by 21.37% to $6.85 billion.