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Home Economy

India’s Economic activity picked up 16.8% sequentially in the Sept quarter: UBS

by Economy India
October 25, 2021
Reading Time: 3 mins read
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We expect growth to gain momentum in 2H FY22 on cyclical tailwinds including pent-up demand (especially after more people are vaccinated), favourable external demand and higher government spending

Economic activity improved by an average 16.8% quarter-on-quarter sequentially in the September quarter on progressive re-opening of the economy post the second covid-19 wave after contracting 11% QoQ in the June quarter, according to the UBS-India Activity indicator.

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Economic Indicators

“Even for the first fortnight of October, the activity indicator is up 1.8% MoM. Mobility indicators (Google foot traffic, traffic congestion in cities, Apple driving index) are back to their pre-pandemic levels. The economic indicators also improved (electricity demand, e-way bill generation, vehicle registration, etc.) during this period,” UBS said in a report on Monday.

Economic Recovery

UBS has projected the Indian economy to grow at 9.5% in FY22. “We expect growth to gain momentum in 2H FY22 on cyclical tailwinds including pent-up demand (especially after more people are vaccinated), favourable external demand (goods exports are c25% above the pre-pandemic level, FYTD) and higher government spending (likely towards capex). That said, we will be closely watching the recent supply-side disruptions, including high global commodity prices, especially oil and domestic coal shortages, which could weigh on India’s fragile economic recovery,” it added.

Developing Economy

Unlike developed economies, where a much higher proportion of people work in the formal sector and maintain their income levels during the pandemic, UBS said in a developing economy such as India, 83% of the labour force is employed in the unorganised sector, with only 17% in the formal sector. “The pandemic has adversely affected the employment and income levels of informal sector workers (largely in the nonagricultural sector in rural areas and the high-contact services sector in urban areas),” it said.

Boosting Revenue

UBS has estimated the consolidated fiscal deficit of both centre and states to narrow to 9.8% of GDP. “For the central government, we estimate a lower fiscal deficit of 6.3% of GDP in FY22 (vs. 6.8% as per the budget estimate [BE]) on a cyclical economic recovery boosting revenue collections and the roll-back of pandemic-related relief measures. In contrast, the states may miss the BE of 3.2% of GDP by 30bp (UBSe) on a likely shortfall in state GST collections,” it added.

Centre’s Capex

In the FY22 union budget, the central government announced a strong capex push of 2.5% of GDP, the highest since FY08. The states also expect increased capex to 3% of GDP in FY22, according to the finances of 28 states. The fiscal performance in the first five months of FY22 (April-Aug) indicates states’ capex has almost doubled vs. last year and is up 12% vs. the pre-pandemic period. The centre’s capex has increased 28% YoY, in line with the budget estimates of 30%.

UBS said India’s public debt levels remain elevated, at 86% of GDP in FY22 (vs. 88.5% in FY21). “Among global emerging markets, UBS estimates India will have the highest public debt to GDP ratio in 2021. Our estimates indicate nominal GDP needs to grow at least 10% YoY to help stabilise public debt at the current level before it can be reduced,” it added. (livemint)

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Economy India is one of the largest media on the Indian economy. It provides updates on economy, business and corporates and allied affairs of the Indian economy. It features news, views, interviews, articles on various subject matters related to the economy and business world.

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