India’s Finance Minister Nirmala Sitharaman said in her ministry’s monthly review that the country is witnessing a V-shaped economic recovery and attributed the steep 23.9 per cent contraction of the economy in the June quarter to “stringent lockdown” that was put in place to curb spreading of coronavirus infections.
Further, the report said the country was witnessing a sharp recovery as auto, tractor, fertiliser, and railway freight traffic sales were seen to be going up.
Elsewhere, COVID-19 containment measures hit hard as real gross domestic product (GDP) in 37 OECD (Organization for Economic Cooperation and Development ) countries shrunk by 9.8%, in the second quarter of 2020, according to provisional estimates. This is the largest drop ever recorded for the OECD countries, significantly larger than the minus 2.3% recorded in the first quarter of 2009, at the height of the financial crisis.
Since May, agriculture has persistently been the brightest spot in India’s revival, the finance minister’s report said. It has recommended deep-seated and wide-ranging structural reforms in land and labour markets to reverse the slowdown. However, last week India’s rural sector had started showing signs of strain.
While rural India was slightly immune from the disruptions caused by the coronavirus pandemic in the early months, the case has reversed by now. In rural India, employment fell by 3.6 million in August and the count of the unemployed rose by 2.8 million, said the Centre for Monitoring Indian Economy (CMIE). This shrinking of the labour force in rural India along with a sharp fall in employment is a sign of growing stress in the hinterland, CMIE added.
By July-end, 83 per cent of the kharif sowing was complete, which left very little work for August. Consequently, 40 per cent of the sowing was done in the months of June and July respectively, which fell to a mere 20 per cent of the sowing in August.
The fall in farm activities also led to lower engagement of the workforce. The CMIE data showed that the employment in farming fell by 0.5 million in August and job losses in the rural non-farming sectors were to the tune of 3.2 million.
There is little doubt that China is driving the demand and consumption of metals for the past few weeks. Consumption of steel end users has been rising constantly n China, and the country is expecting even more growth in the month of September. Ratings agency Moody’s, however, has forecast a decline by around 10% this year to the earnings of Asia-Pacific mining and metals companies.
India’s steel industry is likely to hike domestic price of steel citing high iron ore prices as the reason. Also while the state of Odisha has successfully auctioned 17 of its iron ore mines to the private sector, Indian miners have sought government intervention against “steep increase” in steel prices that the industry has been threatening.
In a letter to Prime Minister Narendra Modi, the miners said that though integrated steel players had secured sufficient raw material for their plants through iron-ore mining leases at the end of March, they were now taking the plea of high international iron-ore prices to hike steel prices in India.
However, the good news is that steel producers in India have started showing an uptick in steel sales, indicating some consumption activities. Steel Authority of India declared a 35 per cent increase in sales in August this year compared to the same month last year.
Gold prices last week continued downtrend on strong dollar recovery against major currencies. Positive US economic data boosted investors’ appetite for riskier assets. Onm Friday, gold prices fell to 54,110 from Rs 54,600 per 10 gram a day before, while silver declined to Rs 65,600 from Rs 67,200 per kg. In the international market, gold was trading lower at $1,934 per ounce, while silver was quoting flat at $27.24 per ounce.
Meanwhile, India’s Union government notified the setting up of the International Bullion Exchange at the Gujarat International Finance Tec (GIFT) City near Ahmedabad and declared the International Financial Services Centres Authority (IFSCA) as the regulator for spot trading in gold and silver. The move is seen as a game changer for India’s bullion industry, and is expected to put India in a position to set its own price of gold.
Oil prices hit a rough patch this week, falling back in concert with broader financial markets. The dollar gained strength, which also pushed down crude. WTI was driven below $40 for the first time since June, following a report that the volume of crude arriving in China was set to slow in September and after U.S. government data showed a steep drop in gasoline demand.
Earlier when oil prices were falling to 22-year lows, Chinese refiners took advantage of their financial muscle to suck up available barrels across the globe. Now that its economy is sputtering like the rest of world, China isn’t interested in aggressively buying crude since it has ample supply.
Ironically, Friday’s price drop came on the same day that Russia’s energy minister Alexander Novak predicted that oil prices would stay in the $50-$55 per barrel range next year, as the world continues to grapple with the pandemic and as an emphasis on renewables factors more into the energy landscape.