Recent data released by Controller General of Accounts (CGA) suggest that the pre-Covid levels of growth is not far and the momentum gained in the last quarter of 2020 will continue to further push economic recovery in 2021. This bright side of the story when coupled with another set of data tells a different picture altogether, but what side can we opt for in order to strategize India focus, strategy or operations.
CGA data talks about expanding government revenue collection, both direct & indirect except corporate tax, and the Government of India spending spree further imparting a positive influence on the economy. The data states that the center’s gross tax collection rose for the second straight month in November. While the gross tax collections were driven by indirect taxes but to a surprise, we also saw a rise in personal income tax, making the overall collection broader based. Though center’s proceeds from the disinvestment was sluggish but that again tells us that the revenue has not been achieved out of asset sales. The aggregate tax collection grew by a healthy 23% in November 2020 up from 19% in October. Indirect taxes grew by 27.2% in November up from 23% in October while GST (Goods & Standard Tax) reported an all-time high in December 2020, which suggests that economic activities are activated. But overall, the total revenue collection of the government remained $30 Billion less than that of 2019-20 levels.
The rise in revenue collection has allowed the government to increase spending for example the spending in December was up 48% as compared to November 2020. But this does not mean a pre-Covid times are back as the cumulative government spending for the period of April-December 2020 has grown merely by 4.7%. In fact, actual spending is significantly lower than the 12.7% budgetary growth. The picture can be more clearly expressed when we say that even if the government meets its budgetary expenditure now translates into a 30% increase in the spending in the remaining financial year i.e., December 2020 to March 2021.
Now, in order to get a better understanding of the situation we must have a look at the FDI inflows into India during the Covid times. In October 2020 India attracted $500 Billion in FDI inflow until now. The October-November-December quarter saw a steady increase in FDI inflows with each month at $27 Billion, $32 Billion & $37 Billion respectively. This reflects that India still remains an attractive destination of investment in South Asia, which is a step towards the government efforts to accomplish its goal of a $ 3 Trillion economy by 2025.
Looking from a consumer’s point of view – the ease in the movement and a general lowering of interest rates with a good access to funds, visible stability vis-a-vis Covid anxiety, businesses buckling up for absorbing labour incoming and a government with clear intent of providing support to small & medium businesses; suggest normalization is not far. Though we cannot ignore the long-lasting hardships Covid brought with itself, but a pre-Covid level of market movement is not far.
From a manufacturer’s point of view the subsidized electricity & relaxed labour laws are efforts in the direction of employment which will have a trickle-down effect on the economy. Indian government created a Special Purpose Vehicle (SPV) across its ministries & departments to facilitate all the necessary clearances, for foreign businesses is a welcome step towards the direction of economic recovery. There’s no doubt to say the future economic performance of India looks interesting, on a higher side, than we initially predict this year to be a whitewash.
The year 2020 has taught us how humanity stood together for one cause and the ways we adapted ourselves to these widespread disturbances. Since the vaccine is round the corner and daily cases dropping down, we expect a normalcy sooner than later. We also feel that the recovery will shoot up our expectations in terms of value and speed. The budget session of parliament is soon to start which in my opinion will be the jump starter for the economy. We appeal to the government to remain away from the vote bank politics and prioritize development-based governance. will further decide the course to recovery.
