Economy to shrink by 4.5 percent in FY 21, says Finance Minister Nirmala Sitharaman

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A perusal of the Union Ministry of Finance’s monthly macroeconomic report for June 2020 makes it clear that the Covid-19 pandemic has had a severe impact, adding to the miseries of the previous fiscal. While the report cites the IMF to predict a 4.5 percent contraction in India’s GDP in FY21 and notes that government revenues have been hit hard, it also notes that there are green shoots in a few activities. These are power and petroleum consumption, highway transport activity, and retail financial transactions.

According to the report, electricity consumption saw a lower contraction in growth rates from (-)24 percent in April to (-) 15.2 percent in May to (-) 11.3 percent in June (till June 28). The total assessable value of E-Way bills rose 130 percent in May 2020 (Rs  8.98 lakh crore) compared to April 2020 (Rs  3.9 lakh crore), though still below pre-lockdown levels.

The value of E-Way bills generated between June 1 and 28 stood at Rs  11.4 lakh crore. Petroleum consumption has increased by 47 percent in May compared to April, and the year-on-year contraction was “much smaller at (-)23.2 percent in May as against (-)45.7 percent in April”.

“Average daily electronic toll collections increased from Rs  8.25 crore in April to Rs  36.84 crore in May, rising more than 4 times. In the first four weeks of June, it has improved further to Rs  50.9 crore. Total digital Retail financial transactions via NPCI platforms increased sharply from 6.71 lakh crore in April to Rs  9.65 lakh crore in May. The trend is expected to continue in June driven by a sustained pick-up in real activity,” the report said.

Economy to contract

However, it cites the IMF’s World Economic Outlook to note that all regions across the world are projected to experience negative growth in 2020, for the first time in history.

“While advanced economies are projected to contract by 8 percent in 2020, 1.9 percentage points lower than the April forecast, growth in emerging market and developing economies has been forecast at (-) 3 percent, a downward revision of two percentage points,” it noted, adding, “In line with a downward revision of global growth, India’s growth has been forecast at (-) 4.5 percent in 2020, a 6.4 percentage point downward revision compared to the April 2020 forecast”.

Revenue hit hard

The pandemic and the subsequent lockdowns have had a substantial impact on government revenues in April and May 2020.

“Revenue receipts registered a negative growth of 68.9 percent, led by negative growth in Personal Income Tax, all indirect taxes, and non-tax revenue. The corporation tax registered a massive growth of 1,408.1 percent over May 2019 and stood at 2.5 percent of BE. Personal Income Tax stood at 5.6 percent of BE compared to 10.6 percent till May 2019. Non-Tax revenue up to May 2020 turned out to be less than 62 percent of the level till May 2019,” the report said.

As for the expenditure side, the capital expenditure rose by 15.7 percent relative to May last year, whereas revenue expenditure fell 1.9 percent over May 2019 and stood at 17.4 percent of budget estimates. Consequently, the Centre’s gross market borrowings up to June 19  stood at Rs  2,82,000 crore, 51 percent higher than last year net borrowings were 12.3 percent higher. States too continued to be active borrowers.

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