Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research, on Core Sector Output June 2020 & Fiscal Deficit June 2020
Core Sector Output - June 2020
"With a gradual easing of the lockdown and the resumption of industrial production, the yoy contraction in the index of eight core infrastructure sectors (ECI) has expectedly, declined further to 15% in June 2020 from 22% in May. However, the month-on-month recovery in the index has only been to the extent of 5.6% in the previous month, reflecting the slow pace of economic revival. Further, the recovery is not consistent across the sectors with a continuing slowdown in coal and crude oil and a moderate uptick in steel, fertilisers and power generation. We, nevertheless, find the monthly growth in cement output encouraging as it indicates a potential demand from the infrastructure sector where public investments continue to happen. While the extent of y-o-y contraction in the ECI index will come down gradually in the coming months, we don't expect it to be in positive territory at least over the next 6 months."
Fiscal Deficit - June 2020
"The fiscal position in Q1 FY21 is surely a matter of concern for both the government and RBI, given the slow pace of the economic revival amidst intermittent lockdowns. While the revenue-expenditure gap is typically higher in the first half of the year, the total revenue receipts at 54% of the previous year's levels in the first quarter clearly reflects the severe impact of lockdown and economic contraction. The fiscal deficit at end of June already stood at Rs. 6.62 Lakh Cr i.e. more than 2 Lakh Cr than the deficit seen a year back. It is interesting to note that the market borrowings have more than doubled within the month of June. While the government has already revised the borrowing targets from the budgeted figures by around 50% in the current fiscal to Rs. 12 lakh Cr, it may prove to be inadequate. One positive sign that we see is the rise of capital expenditure by Rs. 25,000 Cr over the comparable period despite the revenue squeeze, indicating the government's commitment to push up public investments."