As India’s GDP contracts sharply in Q1, other indicators show more pain ahead
- Most economic indicators have shown that the initial improvement in June tapered off in July
- The recent headline WPI numbers show that producers are far from getting back their pricing power
India’s economy contracted by a massive 23.9% in the June quarter, a number largely expected by the market. However, more than the headline print, what worried the markets were the gaps behind the calculation of it. The Central Statistical Organization (CSO) faced a big challenge in collating the data for gross domestic product (GDP) as the lockdown for the first two months of the quarter made it impossible to do so.
“The usual data sources were substituted by alternatives like GST (goods and services tax), interactions with professional bodies, which were clearly limited,” said the government’s official GDP release. Against this backdrop, economists have made their own proprietary indices, which may be more reliable at gauging the economic impact of the pandemic.
One of the most popular indicators since the pandemic hit has been the Google Mobility index, which measures visits to different locations such as retail shops, workplaces, parks, and transport hubs.
These indicators serve as a good gauge of what to expect in the months ahead, said Abheek Barua, chief economist, HDFC Bank. “We and others also have taken the mobility index in our own indices of economic activity. These capture the improvement or lack of it in different segments fairly accurately,” he said.
Most indicators have shown that the initial improvement in June has tapered off in July. In short, the economic recovery is fragile. Electricity use and fuel consumption showed how recovery in industrial output could be long-drawn.
One of the unlikely indicators that could give recovery cues is the wholesale price index (WPI) inflation. In an interview with a television channel, the Reserve Bank of India governor Shaktikanta Das said that the central bank looks at multiple indicators, one of them being WPI inflation.
The recent prints of the headline number have shown that producers are far from getting back their pricing power. This indicates that demand is yet to revive.
Besides, the gross GST revenue collected in July was ₹87,422 crore, 14% lower from a year ago.
Another widely followed indicator of business activity is the trend in e-way bill generation, which also shows that the pace of recovery in June and July has not continued according to the latest data.
E-way bill generation for April, May, June and July hovered at 16%, 46%, 79%, and 88% levels, respectively of pre-covid levels, but came back to 80%, the latest data for mid-August showed, according to data collated by ICICI Direct.
“The recovery remains uneven with a faster rise in supply versus demand, rural consumption versus urban, and industrial sector versus services,” Nomura’s economists said in a note on 25 August.
Many businesses are now indicating that pent-up demand is slowly fizzling out. So, it is yet to be seen how data for the coming months turns out.
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