Private investment remains a sore point:
The Reserve Bank of India in its monthly bulletin has expressed satisfaction over the momentum in economic activity.
The central bank also suggested that demand is also sustaining. And the high level of liquidity has improved the financial condition in the system. RBI's positive sentiment is further reflected in India's Q3 GDP numbers. Coming out of the technical recession. The GDP has grown marginally at 0.4 during the December quarter.
Amidst this dose of optimism, a few pain points continue to remain. The RBI has rued the fact that private investment continues to remain missing. It has also noted that banks are apprehensive about lending to industries and infrastructure projects.
Lack of private investment has been a major concern for India. It has remained subdued for long. Existing capacities are far in excess into the system, and even the non-performing assets remain stuck under the resolution process. When there is excess capacity lying utilized in the system, building fresh capacities makes no economic sense.
February auto sales :
The auto sales numbers for February have thrown up a few interesting trends. Maruti has delivered a strong month as its domestic sales grew by 11.8%. It indicates a strong demand for passenger vehicles.
As for Commercial vehicles, Ashok Leyland's sales data suggests that demand is sustaining in the LCV segment. And, the M & HCV segment is also picking up. Demand for buses, however, continues to remain a drag.
Bajaj Auto's sales figures have been on the disappointing side though. Export volume remained strong for the company.
But, the domestic two-wheeler market continues to remain a drag.
Going through the sales data, it could be said that demand is recovering. CV sale is picking up due to the resumption in economic activities.
However, it has not been an ideal situation for two-wheelers where fossil fuels are the only sources available, Passenger vehicles are in a better position in this regard due to the availability of alternative fuel options.
The growth driver :
Latest GDP estimate suggests a tepid 3.1% growth in private consumption in the March 2021 quarter. This can not be a good sign for a consumption-based economy.
As an alternative, a massive spike is expected in government spending during the quarter. It is projected to grow at 29.2% from a year earlier. The data also suggests that government spending has been on a rise since the beginning of 2021. Total government spending increased by a massive 49.5% in January, compared to January 2020.
The hike in government spending has come on the back of a higher base of last year. It is a major positive factor. It also suggests that as space is shrinking for RBI to expand monetary support, the government has taken the matter into its hand.
The government already announced a massive borrowing program. And, it appears set to carry most of the heavy lifting going forward.
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