Rising energy prices also reflect increase in demand; economic cycle on upward trend: ASSOCHAM

New Delhi: Rising cost of energy, including crude oil, natural gas and coal have emerged as new challenges for policy makers but convey signals of overall worldwide demand pick-up that augurs well for sustaining, improving upon economic recovery, ASSOCHAM has said, adding sectors like merchandise exports, consumer durables, infrastructure and industrial intermediaries are expected to witness robust growth in the second half of the current fiscal.

 

Based on the feedback it received from its constituent members, an ASSOCHAM assessment picked up clear signs of pent-up demand in hospitality including hotels, travel, leisure activities. ”We gather that the pent-up demand in these sectors is unfolding with the onset of the festive season and ensuing winter, ideal for leisure travel in states like Rajasthan, Goa and southern cities. Business travel, though, is yet to return thanks to the Work From Home (WFH) transforming into institutional arrangements, helped by technologies and expanding telecom bandwidth”, the chamber note pointed out.

 

It said, rising energy prices worldwide due to a combination of reasons -from increased demand in China to shortages of natural gas and coal, remain a challenge for net importing countries like India. Crude oil prices are hardening, leaving no option with the fuel retailers but to revise the pump prices. ”As we have been impressing upon the Centre and the States, it is time we reduced our fiscal dependence on petroleum products. The best solution would be to bring these products in the GST network whereby the tax cuts are taken both by the Centre and the States. The demand boost would leave us with a great multiplier impact,” said ASSOCHAM Secretary General Mr Deepak Sood.

 

Mr Sood said that in the long-term, as India continues to raise the capacity of renewable energy and move towards greater electrification of automobile sector, our overall energy basket should comprise of an increased share of domestic resources.

 

He said though there is a surplus liquidity in the system, the RBI should unwind the infusion in a gradual manner so as the normalisation process remains smooth and least disruptive. The inflationary pressures on account of fuel , which are anyways outside the core inflation , should not weigh on the Reserve Bank of India for its policy rates.

 

The chamber assessment also noted improved prospects for merchandise exports thanks to increased worldwide demand pick up. Although exports in the first half of FY 2021-22 grew by close to 57 per cent on a low base of the previous fiscal, the shipments were equally impressive by over 28 per cent as compared to pre-Covid comparable period of FY’20.

 

”Going forward, prospects look even more optimistic, as the economies of the export destinations are opening up amidst pent -up demand across different sectors”, it said.

 

Internally, sectors like consumer durables coupled with industries like paints, electricals are witnessing robust growth; so is the case with metals and industrial intermediaries. As the Monsoon winds up after a delayed but long spell, cement demand is likely to see a smart expansion with other construction material.

 

As for the agriculture sector, with Monsoon lasting long, the soil moisture should help Rabi sowing, though there are reports of possible delays due to weather conditions.