Finance ministry exudes confidence, says festive surge isn’t temporary blip, likely to last

The finance ministry on Tuesday exuded confidence that the surge in a clutch of high-frequency indicators over the past two months isn’t just a temporary blip but will likely last beyond the festival season, as it sought to highlight its possible durability.

Addressing reporters, economic affairs secretary Tarun Bajaj said the next set of stimulus measures could be unveiled soon. He didn’t give a precise time-frame but added that comments received from a broad range of sectors for relief are being considered by the government.

Pitching for more relief to soften the Covid blow, global rating agency Moody’s recently pointed out that the fiscal impact of the measures announced so far by India make for just 1.2% of GDP (about Rs 2.4 lakh crore), way below the average of about 2.5% for similar-rated peers.

To lure multinational companies at a time when anti-China sentiments are growing globally, Prime Minister Narendra Modi will hard-sell the India story to top executives of at least 20 global investors who together manage about $6 trillion in assets, in a virtual round-table on Thursday. These investors include AustralianSuper, British Columbia Investment Management Corporation, CDPQ, GIC, Japan Post Bank, Korean Investment Corporation, Mubadala, Caryle, Qatar Investment Authority, Temasek and US International Development Finance Corporation, Bajaj said.

Six domestic corporate honchos — Mukesh Ambani, Ratan Tata, Dilip Shanghvi, Nandan Nilekani, Uday Kotak and Deepak Parekh — will also attend the conference. Bajaj said the PM will subsequently hold one-to-one meetings with the global investors as well.

Since domestic private investments have remained elusive in recent years, the government has been pinning hopes on larger inflows of foreign direct investments (FDIs). Bajaj said the overall FDI inflows rose by 13% year-on-year to a record $35.73 billion in the April-August period, despite the Covid-19 outbreak. Analysts say the inflows were boosted by investments into Jio Platforms, Reliance Industries’ telecom subsidiary, from global investors like Google, which had bet $4.5 billion on the venture in July. Jio clinched a clutch of deals with foreign investors in September as well.

The secretary said net FPI inflows rose by $3.2 billion in October, reversing a fall in the previous month. Credit flow grew 5.8% on year in October, against 5.3% in September. Highlighting the resilience of the external sector, he said forex reserves are hovering around $560 billion.

Bajaj said the latest surge in retail inflation is expected to cool down soon. He indicated that retail inflation might have been pressured by supply chain disruptions, among others, and that wholesale price inflation is still well within the comfort zone. Retail inflation surged to an 8-month high of 7.34% in September, while wholesale price inflation remained at just 1.32%.

“We are seeing an improvement in all parametres generally and we are expecting further improvement in Novemeber, and this should continue. The economy is moving faster that what had been anticipated earlier by some economists,” Bajaj said.

Already, certain early high-frequency indicators, such as manufacturing PMI, power generation, auto sales, rail freight and diesel sales, witnessed a surge in October, building on a nascent recovery in September.

But many analysts caution that the durability of the current rebound, seemingly aided by spillover of pent-up demand post-lockdown, can be established only if the momentum outlasts the festive season. Already, exports dropped by 5.4% on year in October, reversing a rise in September and dashing hopes for an early revival.