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Indian economy on the mend but policymakers need to be watchful amid high crude prices

India's GDP growth at 13.5%

India’s economy is on the mend in the post Covid phase.

According to data, credit growth in the first two months of the financial year has been robust, something that will provide a huge relief to the country’s policymakers. The goods and services tax (GST) collections for May at Rs 1,40,885 crore also will be a sentiment booster. It is a 44 per cent growth on a year-on-year basis.

The finance ministry said that this is the fourth month that GST collections crossed the Rs 1.40 lakh crore mark since the inception of the tax regime.

In the previous financial year, around 2000 listed companies reported 29 per cent growth in top line and 52 per cent growth in profit after tax (PAT) as compared to 2019-20.

Most importantly the construction sectors including cement, steel reported impressive growth numbers in both revenue as well as PAT, the SBI report added.

However, measures need to be continuously monitored and tweaked to cool off impact from high global crude oil prices. Besides, all eyes are on the Reserve Bank of India’s monetary policy. Though the central bank has already indicated that interest rates will be hiked subsequently, “we expect RBI also to be supportive of growth and hike repo rates gradually, but mostly frontload it in June and August policy,” the State Bank of India said in its report.

The Centre has already slashed domestic fuel prices and made imports of key raw materials cheaper.

The SBI also said that the inflation rate is likely to remain between 6.5- 6.7 per cent in the current financial year “on the back of excise rate cuts by the government. Independent forecasts reveal that oil prices could climb further before declining, but it might still hold up at current levels for a longer period of time, it said.

India’s growth rate in 2021-22 stood at 8.7 per cent — higher than China’s 8.1 per cent. But China’s growth rate this year is expected to be severely dented by the stringent lockdown imposed for about two months to contain the spread of the infections.

“It is also important to ensure there is no other Covid 19 wave hitting us. That is critical as even a partial shutdown or restriction can dent economic growth,” a senior official with a ratings agency told India Narrative.

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