Leading indicators suggest economy recovering, says economist Bhanumurthy

Eminent economist N R Bhanumurthy on Sunday said leading indicators are suggesting that the Indian economy is on recovery path and clearly moving out of the "dark clouds" brought on by the COVID-19 pandemic.

Bhanumurthy, currently Vice Chancellor of B R Ambedkar School of Economics (BASE), further said in terms of the extent of economic recovery, it could take may be one more year to even come back to pre-pandemic levels.

"Going by the recent trends in some of the leading indicators, there are clear positive signs and the Indian economy may be clearly moving out of the dark clouds covered by the pandemic," he told PTI in an interview.

Bhanumurthy pointed out that one leading indicator that could be considered is the robust government revenue collections, higher than the budget estimates; it is something that suggests optimism in growth recovery in India.

According to the eminent economist, the Indian economic recovery is broad-based, although some components of services sector are still recovering largely due to severe supply-side disruptions. "But this could also be due to severe second pandemic wave that disrupted movement of economic agents."

The Indian economy grew by a record 20.1 per cent in the April-June quarter, helped by a very weak base of last year and a sharp rebound in the manufacturing and services sectors in spite of a devastating second wave of COVID-19.

India is now on track to achieving the world's fastest growth this year.

The Reserve Bank of India (RBI) has lowered the country's growth projection for the current financial year to 9.5 per cent from 10.5 per cent estimated earlier, while the World Bank has projected India's economy to grow at 8.3 per cent in 2021.

On the stock market boom at a time when economic growth has slowed down, Bhanumurthy said it is common to say that stock markets do not reflect the real economy.

"However, this time around, sustained surge in the stock indices do not suggest such disconnect," he said.

Bhanumurthy, however, added that one may see some corrections when large central banks in the world start tightening when the inflationary pressures build up and the same could happen in India as well.

On recent calls for using the huge forex reserves for infrastructure development or recapitalisation of public sector banks, the economist said the reserves are largely hot money that are required to maintain stability in the forex market.

"In such conditions, using reserves for any specific purposes such as financing infrastructure or re-capitalisation of public sector banks could only end up in weakening external accounts," he observed.

Asked if high retail and wholesale inflation is a matter of concern, he said going by the recent trends in both Consumer Price Index and WPI inflation, there are diverging trends.

He said indeed continuously high WPI inflation is a worrying factor because it could have pass-through impact of CPI even with a long lag.

Stating that the Monetary Policy Committee indeed taking note of this issue,

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)