Visible signs of economic revival; robust tax collections to support economy: FinMin

With the second wave of COVID-19 pandemic abating and state governments relaxing restrictions, the economy has been showing signs of rejuvenation since the second half of May, the Finance Ministry has said.

"The swift rebound in economic indicators and the muted impact of the second wave is corroborated by upward revision of RBI estimates for real GDP growth in Q1: 2021-22 to 21.4 per cent from its June estimation of 18.5 per cent," the Department of Economic Affairs said in its monthly review for July.

The movement of high frequency indicators in July clearly point towards a broad based economic revival, the ministry said, adding that manufacturing PMI sharply rebounded to expansionary zone in July and GST collections reclaimed the Rs 1-lakh crore mark by rebounding to Rs 1.16 lakh crore.

"The surge in economic activity in July is further corroborated by trends in Kharif sowing, fertiliser sales, power consumption, vehicle registrations, highway toll collections, e-way bills and digital transactions. Latest available data on growth of eight core industries, auto sales, tractor sales, port traffic, air passenger traffic also indicate sequential improvement from the contraction induced by the second wave," it said.

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While systemic liquidity continued to remain in surplus in July, a decline in growth of cash in circulation reflected a shift away from pandemic-induced precautionary savings.

Besides, the ministry said that bright prospects of economic normalisation are also evident in the external sector indicators, with consumption of petroleum products recovering in June and exports rebounding strongly to their highest ever monthly achievement at $35.17 billion in July.

On the fiscal front, the report pointed out the Centre's fiscal deficit at Rs 2.74 lakh crore during April-June was 18.2 per cent of the Budget Estimates (BE), much lower than that in the corresponding period of the last year at 83.2 per cent of BE.

Besides, net tax revenue stood at Rs 4.13 lakh crore in Q1 of 2021-22 against Rs 1.35 lakh crore in Q1 of 2020-21, while non-tax revenue increased by 738.4 per cent over the same period last year after accounting for the RBI's surplus transfer of Rs 0.99 lakh crore to the government.

"The robust recovery in tax collections cushions the fisc towards meeting the budgeted support to the economy," the report said.

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On inflation, which is above the central bank's comfort level of 6 per cent, the ministry said that the recent pick-up was driven largely by adverse supply shocks due to disruptions caused by the pandemic, elevated international commodity prices and inflationary pressures in edible oils and pulses.

"Inflation has remained above the band of 6 per cent in May and June but these pressures are likely to smoothen out over the coming months with easing of restrictions, progress of southwest monsoon, and recent supply-side policy interventions in pulses and oilseeds market," it said.

With increasing vaccination numbers and high sero-prevalence, the subsequent waves of pandemic are expected to be mild in terms of severity of disease, the report said.

"However, it is imperative that COVID-appropriate behaviour and due protocol is followed. At this juncture, the economy and society are at a crucial inflection point where sustenance of economic recovery, vaccination progress and COVID-19 appropriate behavioural strategies are needed in close synergy with each other," the ministry said.

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