Curbing expenditure to contain fiscal deficit may impact demand recovery: Nomura Financial

Nomura Resumption Index has shown a pick-up in activity levels in the week ended December 6, however, it is still about 11 percentage points below the pre-pandemic level of activity.

Aurodeep Nandi of Nomura Financial spoke to CNBC-TV18. He said, “It is a confluence of the factors, there is pent-up festive demand, and there is a normalisation process from the lookdown that is taking place. On the demand side, you have got pent-up demand that is coming back and then on the pandemic I believe the kind of threat, the panic has reduced, a confluence of all of these has led to pretty good economic data in the past few months.”

“In consumption, in investments, in industry, it is roughly according to us around 10 percentage points below pre-pandemic levels. Services, the more contact-based ones, are lagging behind much more around 40-50 percentage points below pre-pandemic levels,” he added.

On the expanding fiscal, Nandi said, “What the government is doing progressively in order to control the fiscal deficit has been to cut expenditure which is a little paradoxical because you are having a slowdown and government is cutting expenditure. But then eventually that will start impacting growth. In the very near term, one needs to be cautious about how growth reacts. It is the medium-term where we are a little more positive where we see bottoming of this cycle.”

“On 2021, we are far more bullish than we are in say on the next 2-3 months. We have upgraded our forecast for 2021, we are in fact expecting above consensus at 9.9 percent growth versus minus 7.1 percent in 2020,” he said.