Third wave of Covid nervousness: Basic sector growth slows to 9-month low in November

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Growth in eight infrastructure sectors fell to a nine-month low of 3.1% in November, as most of them saw a decline in activity over fears that the impending third wave of the pandemic would fail. further erodes momentum in the first few months of 2022.

Data released by the industry department showed that only fertilizer production recorded a sequential pick-up in growth (2.5%) in November, while cement production turned negative (-3.2 %) after a deviation of 10 months.

Production growth in all other sectors such as coal, crude oil, natural gas, refined products, steel and electricity fell sequentially.

Aditi Nayar, chief economist at ICRA Ratings, said the weaker-than-expected core sector impression added further evidence that momentum has slowed after the holiday season due to the disruption in the supply to parts of southern India due to heavy rains.

“With considerable moderation in basic sector growth and the sequential decline in TPS electronic invoices, we expect the growth of the Industrial Production Index (IIP) to flatten to less than 2.5%. in November 2021, despite the weak base (- 1.6%) in November 2020, ”she added.

The World Bank and Moody’s forecast India’s economy to grow 8.3% and 9.3%, respectively. ICRA Ltd earlier this week withheld its 9 percent growth forecast for FY22. The Reserve Bank of India (RBI) kept its projection of 9.5 percent annual GDP growth over the course of the year. ‘FY22, although it downgraded its growth estimate for the December quarter to 6.6 percent from 6.8 percent, and the growth estimate for the March quarter to 6 percent from 6 percent , 1 percent. India’s economy grew 8.4% in the September quarter, surpassing its pre-pandemic size, as vaccination accelerated and service activity returned to normal after the disruption caused by the devastating second wave of the pandemic in the June quarter.

In addition, data released by the Comptroller General showed that the government had only exhausted 46.2% of its budget deficit target for the year as a whole during the first eight months of the year. through November, the lowest in 11 years, due to strong tax growth. income.

India Ratings chief economist Devendra Kumar Pant said that despite poor divestment performance, he estimates the fiscal deficit for fiscal year 22 to be 6.6% of GDP, lower than estimated 6.8% budget.

“Despite the reductions in excise duties on gasoline and diesel in November, gross tax revenues increased by 18.2% in November and 50.3% over the period April-November. However, net tax collection in November fell 18.6% due to the doubling of the state share in central taxes to 95,082 crore rupees during the month, ”Pant added.

However, Ms. Govinda Rao, chief economic adviser at Brickwork Ratings, said that given the added burden of additional demand

for grants and the likelihood that the government will miss the divestment target, the chances that the government will miss its budget deficit target cannot be ruled out.

“We expect the budget deficit to slightly exceed 6.8% of budgeted GDP and reach 7%,” he added.

The government secured parliamentary approval to spend an additional 3 trillion rupees through an additional request for grants during the winter session. This includes an additional expenditure under Mahatma Gandhi’s National Rural Employment Guarantee Act, increased fertilizer subsidies, additional food subsidies and additional export incentives, as well as the clearance of debt. Air India debt.

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