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NEW DELHI: Eight infrastructure sectors grew 1.1% in June from the preceding month after the contraction in April and May due to the devastating impact of the second wave of the coronavirus pandemic, month-on-month calculations showed.

This further confirmed the trend visible in other high-frequency indicators, which showed the economy may have bottomed out in May, with states beginning the unlocking process in early June as the second wave started ebbing.

However, year-on-year data released by the industry department showed core sector growth eased to 8.9% in June after double-digit growth in the previous three months as the low base effect of last year began to peter out.

Aditi Nayar, chief economist at Icra Ltd, said while the core index rose month-on-month in June, it remained below the April level, particularly on account of cement, electricity and petroleum products, consistent with the picture of an incomplete recovery revealed by other high-frequency indicators.

“We expect the IIP (index of industrial production) to expand by 12-17% in June, exceeding the core sector growth, as some of the other high-frequency indicators such as GST e-way bills and auto output have displayed a solid sequential uptick in that month, engendered by the relaxation of state-level restrictions," she added.

However, more recent data suggest economic uncertainty may not be over yet. DART (Daily Activity and Recovery Tracker) Index by researcher QuantEco showed economic activity to have declined for the first time in 10 weeks, for the week ended 25 July after it surpassed the pre-pandemic level of 100 in the prior week.

“Notwithstanding last week’s loss of momentum, July has seen a measured recovery in economic activity to near pre-pandemic level, which was marginally overshot in February. This has been led by a stronger uptick in e-way bills, traffic movement and online restaurant searches. Even as consumer mobility and industry-oriented indicators of rail freight and electricity generation took a breather in the month, economic activity can be expected to continue to trend sideways in the coming weeks," said Yuvika Singhal, an economist at QuantEco.

The recent rise in covid cases in Kerala, Tamil Nadu and Karnataka added to the uncertainty, along with the tardy pace of vaccination.

“The recent sero survey by ICMR (Indian Council of Medical Research), which estimates two out of three Indians possessing covid antibodies, gives India an opportune window to up the pace of daily vaccinations," she added.

Government spending didn’t pick up in the June quarter either, with total expenditure at 23.6% of the full-year target, below the year-ago level. Data released by the Controller General of Accounts showed the central government exhausted only 18.2% of its full-year fiscal deficit target during the June quarter, the lowest in 11 years. It had reached 83.2% of the budgeted target during the same period last year.

Capital expenditure during the June quarter stood at 20.1% of the full-year target. It was also lower than the 21.4% achieved in the same period last year when the country was under a strict lockdown.

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Nayar said the sharp jump in tax and non-tax receipts and the mild contraction in revenue expenditure curtailed the government’s fiscal deficit to 2.7 trillion in the June quarter, less than half of last year’s level of 6.6 trillion during the nationwide lockdown.

“The magnitude by which the government’s fiscal deficit will overshoot the FY22 target will depend on how much of the disinvestment target of 1.75 trillion remains unachieved at the end of this year and any other major fiscal stimulus measures that may be announced," she added.

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