Core sector output continues to shrink in May, fiscal deficit as of May at ~59% of target

India’s fiscal deficit as of May, 2020 stood at Rs 4.66 lakh crores or 58.6% of the fiscal deficit target for FY21, official data released showed. With economic activity coming to near halt in April and only picking up marginally in May, net tax receipts stood at Rs 33, 850 crores whereas total expenditure stood at Rs 5.12 lakh crores, an indication of heavy front-loading of expenditure to counter the covid-19 pandemic.

In April this year, RBI governor Shaktikanta Das had expressed concerns that meeting the fiscal deficit target was going to be challenging in FY21. Experts have estimated the center + state combined fiscal deficit could reach 13-14% of the GDP. The fiscal deficit stood at 4.6% of the GDP in FY20 as against a target of 3.3%.

Meanwhile, official data released earlier today showed contraction in eight core infrastructure sectors continued for the third month in a row in May. Although with economic activity resuming iin limited manner in May, the combined output shrank by 23.4% as compared to 37% in April when almost all activity was shutdown. Key infrastructure sectors like steel (48.4%), cement (22.2%), refinery (21.2%) and electricity (15.6%) kept on contracting sharply with fertilizer the only core sector out of the eight to register a positive trend. The eight core sectors account for nearly 40.3% of the Index of Industrial Production (IIP).

The manufacturing Purchase Manager’s Index (PMI) released earlier this month by IHS Markit stood at 30.8 for May, up marginally from 27.4 of April but still way short of the 50-mark that separates contraction from expansion. With the country now moving into Unlock phase and economic activity resuming gradually, some encouraging trends have been observed in terms of unemployment nos. dropping to pre-lockdown levels and automobile sales picking up slowly.

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