Hopeful signs

Recently, an important agreement has been signed between India and Russia regarding the supply of crude oil at low prices, according to which Russia will supply crude oil to India in rupees instead of dollars. The agreement has been made on the terms of India, under which Russia will ensure the supply of crude oil to India's coastal borders. This condition has been put in place to avoid the complexity of the existing restrictions. Indian consumers are likely to get the direct benefit of this agreement. In the current scenario, countries across the world are facing economic pressure due to increased prices of crude oil in the international market. In such a situation, India can garner benefits from this agreement on multiple fronts.

The Reserve Bank of India, in its monthly report, said that the current geopolitical tensions have pushed oil and other commodity prices to a high level, posing a risk of stifling India's growth momentum; and a further heavy selling in the stock market by foreign institutional investors has had a negative impact on the Indian economy.

Crude oil has crossed the USD 100 per barrel mark for the first time since 2014 due to Russia's attack on Ukraine. Not only this, but it had also touched the figure of USD 140 per barrel. Now, it is slightly softening and trading above USD 100 per barrel. This has given some relief to the economy.

The global growth outlook also remains worrying, with risks of high inflation and financial instability looming large. If the crisis is not resolved soon, then global recovery may also be adversely affected, including the Indian economy. In the current situation, global rating agencies may cut the global growth forecasts for the coming years.

Despite the current difficulties, India is making steady progress on the domestic front. In India's macro perspective, the economic foundation remains strong. Consumers' confidence in the government and businessmen's confidence in the business environment is increasing and demand is also improving. The improvement is being fuelled by the excellent performance of the agriculture sector and the continued good performance in the industrial and services sector. Not only this, owing to the forecast of a good monsoon, the Agriculture Ministry estimated that this year the food grain production could touch a record 316.16 million tonnes.

The lending cycle is also improving. Borrowing demand between November 2021 and January 2022 was Rs 65,298 crore, whereas it was Rs 61,983 crore during April-October 2021. Some banks have also increased fixed deposit rates due to increased lending demand. An increase in borrowing demand means that both demand and supply are increasing.

Direct tax collection has increased by more than Rs 1 lakh crore from the revised estimate of the budget for the financial year 2021-22. The increase in tax collection is a sign of economic reforms and better tax administration and will help the government to meet the third supplementary demand for higher expenditure. In the current fiscal, the government has received direct tax of around Rs 13.60 lakh crore after refund payments till March 16, as against the revised estimate of Rs 12.50 lakh crore. During this, Rs 1.87 lakh crore has been refunded to the taxpayers. Direct tax collection stood at Rs 9.18 lakh crore, up 48.41 per cent over the same period last year. Before the pandemic, direct tax collection was Rs 9.56 lakh crore in the financial year 2019-20, while in the financial year 2018-19, it stood at Rs 10.09 lakh crore.

Out of the total direct tax collection, Rs 6.63 lakh crore was received as advance tax, which is 40.75 per cent higher than the corresponding period of the previous financial year. Of the total direct tax collection, Rs 7.19 lakh crore was received in the form of corporate tax and Rs 6.04 lakh crore as personal income tax. This means that the government got more revenue in corporate tax by about Rs 84,000 crore from the revised estimate of Rs 6.35 lakh crore for the financial year 2021-22. Similarly, under the personal income tax head, the government got an additional income of Rs 25,000 crore over the revised estimates (RE).

Most of the personal income tax is received in the last days of March. In such a situation, the direct tax collection may increase further. This will help the government to keep the fiscal deficit at 6.9 per cent of the GDP despite lower receipts under disinvestment and increase in expenditure. As per the RE for the current fiscal, disinvestment was expected to yield Rs 78,000 crore, but the actual receipt stood at Rs 12,424 crore. Apart from this, the government has to spend about additional Rs 1 lakh crore over the RE in the fertiliser subsidy bill and other items.

The Reserve Bank of India has sold dollars in a big way to stop the fall in the value of the rupee due to the ongoing war between Russia and Ukraine. The value of the rupee had fallen to Rs 77.02 on March 7. It is noteworthy that when the rupee was stronger against the dollar, then the Central bank had bought more dollars. Due to this reason, the foreign exchange reserves had reached a record level last year. To maintain the strength of the currency of any country, the domestic currency is sold, so that proper imports can be made for the supply of various products.

Forex reserves fell by USD 11.10 billion to USD 554.35 billion in the week ending March 20. The main reason for the decrease in foreign exchange reserves is the increase in crude oil and products imported from Russia and Ukraine. The fall in foreign exchange reserves was the biggest in the last two years. It touched the level of USD 642.45 billion on September 3, 2021, which was the highest level ever. However, in the current scenario, the price of gold has risen by USD 1.5 billion to USD 43.83 billion.

Even though India has tied up with Russia to buy crude oil at a cheaper rate, it may take some time for the inflation rate to come down. Due to the high price of crude oil and other products, there has also been a decrease in foreign exchange reserves. However, pick-up in revenue collection and borrowing demand is good news for the economy. The continuation of the better performance of agriculture, industry and services sectors is also fuelling the recovery on a large scale.

Views expressed are personal