Fundamentals, but which ones?

"The fundamentals of the Indian economy are sound as the real GDP in Q3 and Q4 of FY'21 (1April 2020-31 March 2021) already crossed the pre-pandemic level," former Niti Aayog vice-chairman Arvind Panagariya said. "In both Q3 and Q4 of FY21, Gross Fixed Capital Formation (GFCF) at 33 percent and 34.3 percent of GDP, respectively was higher than in the corresponding (pre-Covid-19) quarters a year earlier," he said. GFCF, "also called 'investment', is defined as the acquisition of produced assets (including purchases of second-hand assets, including production of such assets by producers for the their own use, minus disposals," but not land or natural resources, OECD. "The term refers to additions of capital goods, such as equipment, tools, transportation assets and electricity," Investopedia. Prof Panagariya sees the rise in GFCF as evidence of "sound"  fundamentals but it actually shows that the economy was in freefall before the pandemic struck. As "the GDP growth rate steadily fell from over 8% in FY17 to about 4% in FY20, just before Covid hit the country", wrote Udit Misra. Prof Panagariya thinks that "when the economy is in a recovery phase, inflation in the region of 6 percent is a good thing". India was one of the few countries with high inflation last year when demand was down. The consumer price index (CPI) inflation "eased to 5.3% y-o-y in August, from a peak of 6.3% in May, and is likely to moderate towards 4% in the next three months, but this is driven by base effects and a drop in vegetable inflation -- the most volatile of CPI components", wrote Sonal Varma. If people expect higher prices going forward they will start demanding higher wages, which, in turn, will add to cost of production and lead to higher prices. The Reserve Bank (RBI) has stubbornly kept interest rate at 4%, which is below the rate of inflation, India Today, and "RBI's bond purchases and its forex market interventions have injected an unprecedented amount of liquidity" which "tends to feed into asset price inflation, as the uncomfortable valuations in equity markets show", wrote Aparna Iyer. "Oil marketing companies (OMCs) have raised prices of aviation turbine fuel (ATF) by about 9% in the past month and by more than 80% in the last one year, adding to the woes of Indian carriers seeking to emerge from the widespread disruptions caused by the pandemic," Hindustan Times (HT). ATF currently costs Rs 72,586.16 per kiloliter at New Delhi," which comes to Rs 72.6 per liter, whereas in Singapore, the price of jet fuel is 0.553 USD per liter, which comes to about Rs 37 per liter at today's exchange rate of Rs 74.54 to 1 USD, xe. High prices means the rupee buys less which reduces people's power to spend. "The latest IHS Markit India Manufacturing Purchasing Managers' Index (PMI) survey showed that the headline index stood at 53,7 in September, up from 52.3 in August," wrote Harsha Jethmalani. But business confidence among manufacturers has not improved much and "the employment scenario is dismal". Prof Panagariya wants to focus on fundamentals. On some, or all of them?