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Opinion

Deciphering the nature of the economic recovery

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At the same time, there are other statistics that suggest a more sober approach. Here are four charts that put these mutually conflicting trends into context.

India
Updated: Jan 8, 2021 1:29 AM IST

High frequency indicators suggest greater optimism than the MPC forecast for 0.1% growth in the December quarter.
High-frequency indicators point to greater optimism than the MPC forecast for 0.1% growth in the December quarter (AFP).

According to the first advanced estimate from the National Statistical Office (NSO), the Indian economy is expected to contract 7.7% in fiscal year 2020-21, 20 basis points more than the 7.5% contraction projected by the Monetary Policy Committee (MPC) of the Reserve Bank of India.

High frequency indicators suggest greater optimism than the MPC forecast for 0.1% growth in the December quarter. At the same time, there are other statistics that suggest a more sober approach. Here are four charts that put these mutually conflicting trends into context.

1) Collections from NIBRI, PMI and GST suggest continued strong recovery

The first two HF economic indicators, the Purchasing Managers Index (PMI) for Manufacturing and the Nomura India Business Resumption Index (NIBRI), for the period ending December 2020 were released on January 4. Both suggest an optimistic economic environment. For the week ending January 3, the NIBRI reached its highest value of 94.5 (100 is the pre-close base). The manufacturing PMI stood at 56.4 in December 2020, making it the fifth consecutive month that it was above the critical threshold of 50, signifying an expansion in economic activity compared to the previous month. PMI Services, while above the 50 threshold for the third consecutive month in December, has been losing momentum since October’s goods and services tax (GST) collections in December (supposed to capture transactions made in November ) reached? 1.15 lakh crore, the highest nominal monthly collection in history. In an interview with HT, Finance Secretary Ajay Bhushan Pandey attributed the December increase in goods and services tax collection to “increased economic activity and better compliance with the approach aimed at curbing tax evasion.”

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