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Country witnessing V-shaped recovery: Finance Ministry report

The Finance Ministry on Friday said the country was witnessing a V-shaped economic recovery and attributed the steep 23.9 percent contraction of the economy in the June quarter to “stringent lockdown” that was put in place to curb the spreading of coronavirus infections.

Among the major economies, India witnessed the steepest decline in the GDP growth in the April-June quarter following the outbreak of the coronavirus pandemic.

“The higher contraction has resulted from the stringent lockdown that India enforced in the April-June quarter. India enforced the most stringent lockdown as reflected in the Government Response Stringency Index developed by Oxford University,” the Ministry said in its Monthly Economic Review for August.

The US economy contracted by 9.1 percent while the UK and France witnessed a contraction of 21.7 percent and 18.9 percent, respectively. Spain, Italy and Germany saw their economies contract 22.1 percent, 17.7 percent and 11.3 percent, respectively, in the June quarter, as per the report.

Euro area registered a contraction of 15 percent while the Japanese economy contracted 9.9 percent. Relative to these advanced nations, India’s GDP contraction at 23.9 percent is slightly higher, the report said.

On the positive side, the report said that stringent lockdown has enabled India to restrain the pandemic-induced death rate to be one of the lowest in the world. India’s case fatality rate was at 1.78 percent as on August 31 as compared to 3.04 percent in the US, 12.35 percent in the UK, 10.09 percent in France, 1.89 percent in Japan and 13.18 percent in Italy.

Further, the report said the country was witnessing a V-shaped pattern of recovery as is seen in various high-frequency indicators.

“The indicators are auto sales, tractor sales, fertiliser sales, railway freight traffic, steel consumption and production, cement production, power consumption, e-way bills, GST revenue collection, daily toll collections on highways, retail financial transactions, manufacturing PMI, the performance of core industries, capital inflows and exports,” it added.

India’s manufacturing Purchasing Managers’ Index (PMI) at 52.2 moved into the expansionary zone in August for the first time since the lockdown, presenting much-required recovery prospects for the manufacturing sector, it added.

Since May, agriculture has persistently been the brightest spot in the revival of growth, the report said, adding that industrial production is showing definite signs of recovery with year-on-year growth in eight core industries output showing a smaller contraction in July than in June.

On the back of robust FDI and FPI inflows and savings from tepid imports, forex reserves, as on August 21, have risen to an all-time high of $537.5 billion. These are capable of financing more than 13 months of imports, should the need arise from a surge in real sector activity, the report said.