(AF) The Indian economy is gearing up for a demand revival with industries starting to add capacity and loosening their purse strings after a pandemic-hit year, according to the chairman of the State Bank of India (SBI).
The boss of the country’s largest lender said that select manufacturers from the infrastructure sectors and their allied businesses are beginning to ramp up capacity, signalling a resurgence in demand following a period of contraction.
Various incentive schemes to boost manufacturing in the country – and spending by state-run companies in expanding capacity – is providing an impetus to the economy, chairman Dinesh Kumar Khara told the news daily The Economic Times on Wednesday.
He added that the ongoing revival may have already returned economic activity to pre-pandemic levels.
Echoing Khara’s views, India’s Chief Economic Adviser (CEA) KV Subramanian said on Wednesday that India is set to exceed 7% annual growth going forward, off the back of strong economic fundamentals.
The current fiscal year – ending March 2022 – he said, could see the economy hitting double-digit growth before moderate 6.5% to 7% growth in the next fiscal year.
PANDEMIC DISRUPTIONS
According to both the CEA and SBI, the reversal is significant since it is driven by a supply-side push from investments and a boost to manufacturing through capacity addition – proof of demand revival.
Last week, The Asian Development Bank (ADB) had lowered India’s growth projections for the current financial year by a percentage point to 10%, mainly due to disruptions in economic activity caused by the second wave of the pandemic.
However, some experts say the revival is still tepid.
“While a supply-side push is evident, that trend is still fairly weak,” said Abheek Barua, chief economist at HDFC Bank. “What is driving the economy is exports growth and the multiplier effect of that export growth.”
India’s exports rose 45.17% year-on-year to $33.14 billion in August, driven by healthy growth in sectors such as engineering, petroleum products, gems and jewellery, and chemicals, according to provisional data from the country’s commerce ministry.
Exports during April-August 2021 grew faster by 66.92% to $163.67bn, signalling a big boost for local businesses in capturing global markets, the ministry said, adding that India is heading towards its $400bn merchandise export target for the current financial year.
“The signs of capacity utilisation are still tepid in most sectors, except in a few sectors where expansion was through capacity additions and not greenfield expansions like setting up large and new plants. These sectors had to ramp up production primarily to meet exports demand,” said Barua.
INVESTMENT KEY
But, while the return to pre-pandemic levels is encouraging, it is not good enough, said economists.
“The industry is spending on capacity expansion but the country has not seen the commencement of investments in a major way in sectors like health, education, and other social infrastructure like sanitation, etc,” said Madhavi Arora, Lead Economist at Emkay Global Financial Services.
According to her, optimal execution of public physical and social infrastructure outlays will be the key to a sustainable demand revival in India.
“This will have large multiplier effect, particularly on jobs at the bottom of the income pyramid and [further] catalyse private investment and domestic demand,” she added.
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