Finance Ministry Says Frontloading Fiscal Measures Key To Economic Revival

Frontloading of fiscal measures planned in this year’s union budget would be essential to revive consumption and investment in the coming quarters, according to the Finance Ministry’s monthly economic review report for May.

The report also said the economic fallout of the second wave of the Covid-19 pandemic may be restricted to the first quarter of the ongoing financial year—amid the peaking of the second wave in first half of last month and localised restrictions imposed to combat its spread.

The second wave has, however, posed a downside risk to the momentum in India’s economic recovery.

The Reserve Bank of India recently slashed India’s GDP forecast by 100 basis points to 9.5% in FY22 on the back of the outbreak of the second wave and its ramifications to the economy.

Key Highlights

• Rapid vaccination and frontloading of the fiscal measures hold key to invigorating investment and consumption.
• Capital expenditure rose 66.5% year-on-year in April.
• Manufacturing and construction expected to experience a softer economic shock compared to the first wave.
• High-frequency indicators started to pick up in May.
• Over consumption, e-way bills witnessed uptick in the second half of May.
• Agriculture sector continues to offer comfortable prospects amidst a normal monsoon forecast.
• Slackening was observed in eight core industrial output, PMI manufacturing, highway toll collections, GST collections.
• Given the ferocity of the second wave, the spread of infection in rural areas has also been rapid.
• The share of rural districts in new cases rose rapidly from 49.7% in April to 57.9% in May, though lower than the first wave peak of 63.6% in September 2020.
• Demand for MGNREGA work continues to be high with 4.14 crore persons demanding work in May.
• Number of person days generated under MGNREGA at 24.2 crore person days in May.