Output of Eight Core Industries declines 2.6% in November; Fiscal deficit shot up to 135.1% of FY21 target at November – end 2020.

According to the data published by the commerce and industry ministry on Thursday, it cited a decline for the ninth consecutive month in the output of eight core infrastructure sectors.

A decline by 2.6 percent was recorded for the month of November, primarily due to the decrease in the production of natural gas, refinery products, steel, and cement, this in contrast to a growth of 0.7 percent reported in the same period last year.

Coal, fertilizers, and electricity are the only sectors that have recorded positive growth on a year – to – year basis this festive season, while crude oil, natural gas, refinery products, steel, and cement – have all shown negative growth in the month of November 2020.

 The figures suggest that the Indian economy might still be in the woods and may take time for recovery.  

According to data, coal production rose on a year – to – year basis for the fourth consecutive month at 2.9%, Electricity output rose for the third straight month at 2.2%, while the most substantial growth has been seen in the fertilizers production and growth at 1.6% in November, and the only sector to have logged in growth in the first eight months of 2020-21, growing 3.8% between April and November 2020-21.

The eight sectors index has declined 11.4% from the same period last year on a cumulative basis from April to November; these sectors account for nearly 40% of the Industrial Production Index (IIP).

Refinery products, natural gas, and crude oil output continued to decline, at 4.8%, 9.3%, and 4.9%, respectively. However, steel and cement sectors have raised fresh concerns due to the output collapse by 4.4% and 7.1%, respectively, for the month of November.

According to principal economists at India Ratings and Research, “Industrial recovery continues to be uneven and fragile as steel nad cement after recording a positive growth in October 2020, slipped into contraction mode in November 2020”.

He also added,” IIP growth could remain weak in November 2020 given the eight core sectors’ performance. It would be interesting to see if the momentum recorded in factory output due to the festive pent up demand for consumer durables and non – durables during the past two months continues in the month of November.”

India’s Fiscal Deficit

As per the data released by the Controller General of Accounts on Thursday, India’s fiscal deficit, from April 2020 to November 2020, India’s fiscal deficit shot up to 135.1% of the Budget target of nearly Rs. 8 lakh crore for 2020-21. 

As matched to the figures at the end of November 2019 at 114.8%, the current statistics are higher. 

With just approximately 40% of the annual estimated revenue receipts coming in, the revenue deficit that had crossed 125% in the first half of the year touched 140% of the Budget target by November.

Meanwhile, the fiscal deficit stood at 120% of the year’s target or Rs. 9.53 lakh crore by the end of October and rose to Rs. 10.8 lakh crore in November. 

Government Spending

The government spending for the year remained low as compared to the same last year this time; this includes capital expenditure that is considered critical to reviving the economy; however, there was recorded a month on – month upward tick in November. 

Of the budgeted expenditure for this year, only 62.7% had been spent, which is lower to last year’s figures at 65.3% at the same time in 2019- 20.

Meanwhile, Capital expenditure stood at worse, with only 58.5% of the target touched as compared to 63.3% in 2019-20. 

Chief economist at CARE Ratings, Madan Sabnavis, said,” A lot depends on how the government manages its expenditures with just four months to go in the year. According to the Atmanirbhar program, if all the allocations mentioned in the same are executed, then the fiscal deficit will increase to around 9% of GDP, which will result in a deficit of around Rs.17- 18 lakh crore.”

Aditi Nayar, ICRA Principal economists, said the fiscal deficit for the year would reach Rs. 14.5 lakh crore or 7.5% of its nominal GDP estimate and saw some encouragement from public spending in November.

For revenue expenditure and capital expenditure – monthly outgo recorded an extended year – on – year expansion of by 32%. A continuance of this trend will result in bolstering the economic activities and helping the Indian economy exit the recession in the coming quarters. 

Higher government spendings were recorded in the health and the consumer affairs Ministries; however, it is possible that several allocations announced this year might not be finally invoked, which could down lower the deficit by Rs 1 lakh – 2 lakh crore.

Lower Receipts to blame for higher fiscal deficit

The expenditure pattern indicates that the expansion in fiscal deficit is not due to increased expenditure, which has been lower this year, but because of lower receipts as both corporate tax collections and income tax collections were down at Rs. 1.03 lakh crore and Rs. 33000 crore respectively. 

Non – tax revenue has also been recorded as much lower and so far stands at just about 32% of the budgeted amount. 

The government needs to up both its budgeted expenditure and its capital expenditure.