Is the Indian Economy in Fine Fettle? Is there any Dark Cloud in the Horizon?

This has never happened earlier.

Never in the history of India.

Tax collection figures have gone through the roof and even surpassed Union Budget estimates.

India’s tax collections soared to a record high of Rs 27.07 lakh crore in the fiscal year ended March 31, 2022, as mop-up from income and other direct taxes as well as indirect taxes jumped.

Gross tax collection of Rs 27.07 lakh crore from April 2021 to March 2022 overshot the budget estimate of Rs 22.17 lakh crore.

Direct taxes, which comprise income tax paid by individuals and corporate tax, came in at Rs 14.10 lakh crore — Rs 3.02 lakh crore higher than the budget estimate.

Indirect taxes like excise duty stood Rs 1.88 lakh crore higher than the budget estimate. Against the budget estimate of Rs 11.02 lakh crore, indirect tax mop-up was Rs 12.90 lakh crore.

While direct taxes showed a 49 per cent growth, indirect tax collections were up 30 per cent last fiscal.

The tax-to-GDP ratio jumped to 11.7 per cent in FY22 from 10.3 per cent in FY21. This was the highest since 1999.

All-Time High GST Collection

GST collection has also shown upside traction.

All-time high GST collection was reported for the month of March 2022 amounting to Rs 1,42,095 crore. With this, the Centre’s GST revenue for FY22 amounted to Rs 6.19 lakh crore, exceeding the revised budget target of Rs 5.70 lakh crore.

High GST collection signifies a robust demand environment and sales activity, especially by the corporates. It also signifies that the effect of the pandemic is practically over on the economy.

Economic Data Show Resilience

Various other economic data show that the Indian economy is extremely resilient and growth has returned with a vengeance.

For example, Indian Railway transported 1,418.1 MT of freight in 2021-22, which is 15 per cent higher compared to 1,233.24 MT in 2020-21. This is another key metric signifying the growth of the economy.

This is the highest ever loading for the railways in a financial year and it has achieved its highest-ever monthly loadings for 19 consecutive months from September 2020 to March 2022.

Cement production is also slated to increase in a strong demand environment, aided by the government’s focus on infrastructure and affordable housing, and almost all cement companies have started capacity enhancement plans.

As far as steel production is concerned, India is the second-largest producer of crude steel in the world. Domestic demand is strong and ever-growing. In FY22, demand for steel is expected to increase by 17% to 110 million tonnes, driven by rising construction activities.

Another heartening factor is that steel exports from India is gathering momentum.

Huge Uptick in Home Sales

India’s real estate sector bounced back from the pandemic-induced slowdown with a record rise in sales of 51 per cent year-on-year at 2,32,903 units, according to a report published recently.

About 1,33,487 housing units were sold in the second half of 2021 cumulatively in the top eight cities, recording a 41 per cent increase year-on-year.

Low-interest rates, a fall in house prices, and state governments’ stimulus supported the housing market revival in 2021.

In Kolkata, there is a huge rise in property registration as compared to the previous year, aided by the reduction in stamp duty.

Will the Russia-Ukraine War Derail the Economy?

While the Indian economy was gaining fast traction on the growth path, aided by lower crude oil prices, suddenly the Russia-Ukraine war started with a devastating negative impact.

India is highly dependent on imported crude oil, and the major portion of our foreign exchange reserves is used to pay for it. Higher crude oil prices are extremely unfavourable to India.

And the war has raised international crude oil prices and consequently, domestic prices of oil and gas started rising almost immediately.

As energy prices increase, prices of goods also start to rise. One of the major components of increased inflation is high energy prices.

Apart from the price of crude oil, prices of other raw materials, metals, chemicals, etc. are also increasing in the international market. As India imports quite a few of these, prices of finished products are also increasing in India.

For example, skyrocketing fertiliser prices are threatening the raise agriculture cost in India, a country where more people are dependent on it than on other economic activities. This is likely to have higher food inflation and moderation of rural demand.

Will Interest Rate Go up, Making Home Loans Costlier?

Do you know what the central bankers do when inflation goes out of hand?

Their copybook response is to increase the interest rate.

This helps to cool off the inflation and maintain demand-supply equilibrium in the economy.

Retail inflation has soared in India to a 17-month high of 6.95% and that is beyond RBI’s comfort level of 4-6%.  The wholesale price-based inflation spiked to a four-month high of 14.55 per cent in March.

Although the wholesale price index (WPI) is rising because of global commodity price rise, especially oil and gas, basic metals, etc. consumer price index (CPI) is increasing because of higher food prices, especially cooking oil, meat, and poultry.

Although RBI is watching the situation with a hawkish stance, rate hikes may start. Many economists are bracing for rate hikes in the current year.

This is surely the lowest interest rate regime and further reduction of interest rates including home loan rates is out of the question. In fact, State Bank of India (SBI) has raised its marginal cost of funds-based lending rate (MCLR) by 10 basis points (bps) or 0.1% across all tenures, a move that will lead to an increase in EMIs.

Buying a home now will maximise the benefit of low-interest rates till rate hikes are announced by RBI. It is, however, expected that RBI will hike rates only gradually.

Apart from the interest rate, property prices are also expected to soar in the near future.

Therefore, if you are looking to buy a home now, avoid waiting further.

Take advantage of lower interest rates and tax benefits as much as possible.



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