After more than half a year of severe lockdown, some high frequency indicators point towards economic recovery. But, it will be fragile, Brickwork Ratings said.
Estimation is that the economy will contract 13.5% in the second quarter (July-September) and the contraction in FY21 is expected to be 9.5% (April 2020 till March 2021). This is unless the government swiftly takes some measures to revive it.
The manufacturing PMI has shown a sharp increase from 52 in August to 56.8 in September, the highest in eight years.
After a gap of six months, merchandise exports have registered 5.3 per cent growth. This was driven by outbound shipment of engineering goods, petroleum and pharmaceutical products and readymade garments.
“However, there are indications that this recovery is fragile. Capital expenditure on new projects declined by 81 per cent in the second quarter over the corresponding period last year, showing a continuous declining trend in investments,” the rating agency said.
Stating that ‘crisis is the mother of reforms’, Brickwork Ratings said the government has rushed in some important reforms to remove constraints in the farm sector and impart greater flexibility to the labour market.
The immediate task the government has to address is the removal of supply chain disruptions and augment aggregate demand to lift the economy out from the mud.
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