The solid auto sales numbers in June endorse the ongoing economic traction.
New Delhi: Auto sales numbers for June 2021 were released recently,with auto major Maruti Suzuki reporting a stellar 217% jump in sales, over May 2021. Tractor giant M&M saw tractor sales nearly doubling, while Ashok Leyland saw 102% growth in June sales, compared to May. Tata Motors saw a 59% growth in June sales, Bajaj Auto a 27% jump and Escorts, a 95% rise, in June, this year, compared to the preceding month. Auto sales are a lead indicator of which way the wind is blowing, in terms of economic momentum. Indeed, the solid sales numbers in June, endorse the ongoing economic traction. A pay-out of Rs 1.35 lakh crore via PM-Kisan, Rs 90,000 crore via the PM Fasal Bima Yojana, a 140% hike in fertilizer subsidy from Rs 500 per bag to Rs 1200 per bag, a hefty MSP pay-out for wheat of over Rs 81,000 crore by the Modi government in the current Rabi season, paddy procurement of Rs 805 lakh metric tonnes in 2020-21 (FY21) and a host of related measures, have added heft to India’s agrarian sector, one of the mainstays of the Indian economy.
Last year, the Modi government announced three Aatmanirbhar Bharat packages, as it mounted a war against Covid, with the total stimulus package of the government and RBI, adding up to a massive Rs 30 lakh crore, akin to 15% of India’s GDP. On June 28, 2021, the Central government announced a fresh stimulus package of Rs 6.29 lakh crore. In 2020, for over eight months in a row, free ration was provided every single month to 81 crore people at a cost of Rs 2.76 lakh crore and the Modi government has been running the free ration scheme again, since April this year.
Modi government has now decided to extend underwriting support of Rs 33,000 crore for project exports. In addition, Rs 88,000 crore boost will be provided for export insurance cover. Rs 19,041 crore, under the latest stimulus package, has also been allocated to ensure broadband to each village via the BharatNet PPP model. With an eye on boosting growth and employment, the corpus of the existing and highly successful, Emergency Credit Line Guarantee Scheme (ECLGS), has been raised by Rs 1.5 lakh crore, taking total size of the scheme to Rs 4.5 lakh crore. A new Rs 7500 crore scheme to guarantee loans upto Rs 1.25 lakh to small borrowers through micro-finance institutions, was also announced.
The highlight of the June 28 stimulus package was a fresh loan guarantee facility of Rs 1.1 lakh crore,of which Rs 50,000 crore is earmarked for healthcare investments, largely in non-metropolitan areas. The balance Rs 60,000 crore is earmarked for other sectors, including a plan to support over 11,000 registered tourist guides and travel agencies so they can survive the second wave’s adverse effects. Working capital or personal loans will be provided to people in the sector to discharge liabilities and restart businesses affected by Covid. Loans will be provided with a 100% guarantee,under the scheme to be administered by the Ministry of Tourism. A maximum loan of Rs 100 crore will be given with a capped interest rate of 7.95% (for healthcare projects) and guarantee provided for three years. Without a guarantee, it would have cost 10%-11%.Interest will be capped at 8.25% for other sectors.
A separate Rs 23,220 crore has also been allocated for public health with a focus on paediatric care, which will also be utilised for increasing ICU beds, oxygen supply and augmenting medical care professionals for the short term by recruiting final year students and interns. Free one-month visas for five lakh tourists,is a great move to revive tourism. The existing initiative to spur employment, where the government bears EPF contributions for new employees earning less than Rs 15,000 a month for two years, has been extended till March 31, 2022. Needless to add, growth has taken precedence over fiscal deficit concerns and rightfully so. Some experts reckon that additional burden on 2021-22 Budget from the “three direct stimulus initiatives” of providing free foodgrains, incremental health spending and rural connectivity, would be Rs 1.18 lakh crore or about 0.59% of estimated GDP for 2021-22,which is certainly manageable.
Focus on stimulating credit offtake growth through interest rate concessions for priority sectors, is also borne out by decision to keep repurchase rate (Repo) rate, at a historic low of 4%,with 2.5% reduction in Repo rate happening between 2019 and 2020.Of total stimulus amount of Rs 6.29 lakh crore, Rs 2.6 lakh crore is by way of credit guarantee schemes, so the impact on the fiscal deficit will be limited. Separately, large electronics’ manufacturers under the Production-Linked Incentive (PLI) scheme have been granted an additional year to meet their production targets.
With the second Covid-19 wave now receding, the economy is already beginning to rev up, significantly. Goods and services tax (GST) collections have been in excess of Rs 1 lakh crore, since October 2020,till May 2021,for eight months in a row. While it is true, the Composite PMI Index fell to 48.1 in May 2021,from 55.4 in April 2021, the ensuing months should see a sharp uptick in PMI data, on the back of Prime Minister Narendra Modi’s mega vaccination drive gaining momentum, which is in turn, leading to unlocking of the economy at a faster pace. India has already vaccinated with the first dose, over 340 million or 34 crore people, which effectively means, we have vaccinated more than the entire population of USA, with the first dose, in a ringing endorsement of the Modi government’s stellar war against the pandemic. Our Covid recovery rate at almost 97% is the highest in the world and fatality rate at 1.1%,is the lowest globally. The weekly and daily positivity rates are below 3%,each. We have already tested more than 40 crore people and counting.
Also, exports grew at a robust 69.4% year-on-year in May 2021, aided by healthy global demand. In April 2021,exports and imports had grown by a massive 197 and 166%,respectively. In fact, during June quarter of FY22,exports jumped to a record $95 billion, the highest ever in a single quarter, in history, on account of healthy growth in sectors, including engineering, rice, oil meals and marine products.
Bank credit grew 6% in May from a year earlier, picking up from the 5.7% expansion seen in end-April. Liquidity conditions stayed comfortable, with the banking system in surplus. Industrial production expanded, jumping by a whopping 134.4% in April 2021, from a year earlier. Similarly, Core sector expanded by a solid 56.1% in April YoY, compared to a YoY growth of 11.4% in March 2021. The manufacturing sector, which constitutes 77.63% of IIP, grew by 25.8% YoY in March 2021,with the mining sector growing by 6.1% in March, while power generation increased by a good 22.5%. India recorded a current account surplus of 0.9% of GDP in FY21, versus a 0.9% current account deficit, in FY 20.
Last but not the least, India’s agrarian sector which grew by a healthy 3.6% even in FY21,despite the pandemic, continues to march ahead, which bodes well for rural demand and the associated multiplier effect it will have on urban demand. With record foodgrain production of over 303 million tonnes in FY21 and record forex reserves in excess of $600 billion, things are looking up. Foreign Direct Investment (FDI) into India saw a robust growth of 27% YoY at $64 billion in 2020,when global FDI actually plunged by a sharp 35%, vindicating the fact that the structural reforms unleashed by Prime Minister Narendra Modi last year, during the pandemic, are steadfastly bearing results. India continues to be a preferred, global investment destination, for more reasons than one.
Ms Sanju Verma is an economist, National Spokesperson of BJP and Bestselling Author of “Truth& Dare—The Modi Dynamic”.