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Amritsar, NFAPost: India is expected to witness improved economic performance from the second quarter of financial year 2020-21 (Apr-Mar), latest report from consultancy firm EY India showed.

“High frequency indicators for India are giving positive signals after the first two months of the pandemic,” EY said in the latest edition of Economy Watch.

The firm also mentioned that India’s economic growth in the first quarter of the current fiscal year is likely to be “the worst” amongst all the quarters of FY21 because of the disruptions caused by the pandemic.

EY expects an improved performance going ahead based on indicators such as the Purchasing Managers’ Index (PMI), the Index of Industrial Production (IIP), sales of passenger vehicles, power consumption and the rise in the foreign exchange reserve.

“In June and July 2020, PMI manufacturing was close to the benchmark level of 50 at 47.2 and 46.0 respectively. Although IIP has continued to contract in June 2020, its rate of contraction has come down to -16.6% from its May 2020 level of -33.9%. In June 2020, passenger vehicle sales picked up sharply with sales of 120,188 units as compared to sales of 33,546 units in April and May 2020 considered together,” EY said.

It added that though power consumption showed a continued contraction, the rate of contraction has reduced over successive months since April, when it was at negative 25%. The rate of power consumption stood at negative 0.4% during the first 20 days of August.

The report also highlighted that the foreign exchange reserves stand as a positive indicator as it has continued to rise steadily to reach a level of $538 billion by Aug 7.

Slowing down of bank credit growth to 5.8% in the fortnight ended Jul 17, however, is one adverse development, EY India Chief Policy Advisor DK Srivastava said.

“Due to subdued demand, average credit growth fell to 6.4% in the first quarter of FY21 as compared to 7.1% in fourth quarter of FY20,” he said.

Srivastava added that the center’s capital expenditure grew by 40.1% in the Apr-Jun as compared to a contraction of  negative 27.6% in the corresponding period previous year, indicating frontloading of capital expenditure by the Union government, which is “welcomed as it signals investment in infrastructure” in line with the National Infrastructure Pipeline (NIP) objectives.

He also said that “In order to rapidly modernise India, there is a need to give a new direction to overall infrastructure development.”

Prime Minister Narendra Modi had recently unveiled infrastructure projects of over 110 lakh crore rupees to boost the economy and create jobs.

EY’s report also pointed at the rising fiscal deficit. “In terms of magnitude, the fiscal deficit in 1Q FY21 is 53.3% larger than the corresponding magnitude in 1Q FY20. Center’s revenue deficit during 1Q FY21 stood at 94.8% of the annual budgeted target as compared to 77.1% in the corresponding period of FY20,” it said

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