Current status of Indian economy

Subject: Economy

Context:

The Reserve Bank of India (RBI) has indicated that the economy which is expected to contract for the first time ever, will take “quite some time to mend and regain” the pre-Covid momentum.

Findings:

• Although data on Gross Capital Formation are not yet available for 2019-20, underlying indicators point to investment having weakened further.
• The ratio of real gross fixed capital formation (GFCF) to GDP declined to 29.8 per cent in 2019-20 from 31.9 per cent in 2018-19 on account of waning business confidence
• Even data on production of capital goods — an indicator of investment demand — shows a contraction of 36.9 per cent in June 2020 (-64.4 per cent in April-June 2020) and import of capital goods contracted by 24.7 per cent in July 2020 (-46.7 per cent in April-June 2020).
• The RBI said the recovery will happen when the non-discretionary spending — expenses that people cannot do without, such as food and rent — leads the way, with a durable increase in disposable incomes enabling discretionary spending like vacation and entertainment.
• Urban consumption demand has suffered a bigger blow – passenger vehicle sales and supply of consumer durables in the first quarter of 2020-21 have dropped to a fifth and a third, respectively, of their level a year ago.
• Air passenger traffic has ground to a halt.
• Rural demand, by contrast, has fared better.