Improving business sentiment can accentuate recovery: ICRA

A sequential improvement in economic momentum set in during June with many states having started phased unlocking of restrictions imposed after the second wave of Covid-19, rating agency ICRA said on Thursday.
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Improving business sentiment can accentuate recovery: ICRA

New Delhi: A sequential improvement in economic momentum set in during June with many states having started phased unlocking of restrictions imposed after the second wave of Covid-19, rating agency ICRA said on Thursday.

This was confirmed by high frequency indicators like GST e-way bills, vehicle registrations, electricity demand, rail freight and petrol consumption.

But at odds with this picture of an economy on the mend, the PMIs for manufacturing and services printed in the contraction zone in June.

"This suggests that businesses remain cautious regarding the near-term outlook after the bruising second wave of Covid-19," said Aditi Nayar, Chief Economist at ICRA.

Amid the uncertainty, she said, enhancing sentiment takes on a crucial role to accentuate economic recovery. Central to this is the pace at which Covid-19 vaccine administration can be accelerated across the country.

The daily average doses nearly doubled from 3.2 million in the week ending June 20 to 6 million in the following week, before easing to 4.1 million in the week ended July 4, 2021.

If the pace of vaccination can be maintained at 6 million per day in Q2 FY2022 and subsequently increased to 8 million from Q3 FY2022 onwards, ICRA estimates all adults will receive both doses of the vaccine by early February 2022.

"This will cover over two-thirds of entire Indian population, bringing us closer to herd immunity and lifting the haze surrounding economic outlook," said Nayar.

Another factor that can imminently imbue enthusiasm and activate animal spirits is the pace of government spending. Besides, a cut in excise duty of fuels can boost sentiment.

Benefitting from the anticipated rise in mobility and economic recovery, ICRA projects the growth in the consumption of petrol and diesel in FY2022 at 14 per cent and 10 per cent respectively on the low base of FY2021.

ICRA said the cesses levied on petrol and diesel can be reduced by Rs 4.5 per litre each while maintaining the total cess revenues of government on these fuels in FY2022 at FY2021 level. (ANI)