India’s factory output shrank by a record 16.7% in March as economic activity came to a standstill because of the ongoing nationwide lockdown, prompting the government to announce a massive fiscal stimulus plan to revive industrial activity.
“The picture for April would be worse with virtually nil growth in most sectors, which will mean a very large dip in growth rate in manufacturing. Only some segments like food and pharma could show positive growth," said Madan Sabnavis, chief economist at Care Ratings.
The lockdown, which came into effect on 25 March, also impacted data collection for both the index of industrial production and consumer price index (CPI); so much so that the National Statistical Office did not release the retail inflation number for April. It only released price movements of selected sub-groups of CPI as field investigators had to rely on telephonic enquiry for data collection from the designated outlets. The data showed food inflation quickening in April to 10.5% from 8.76% a month ago.
In March, manufacturing output slumped 20.6% while electricity generation shrank 6.8% and mining output grew at 0%, government data showed. For the year ended 31 March, factory output contracted 0.7% against 3.8% growth in the previous year. This could impact the final GDP growth for FY20 to be released later this month.
Most economists expect GDP to grow close to 4.5% in FY20 against the government’s estimate of 5% growth.
Most forecasters have also slashed their GDP growth projections for FY21, fearing the lingering impact of the lockdown on the Indian economy. Moody’s Investors Service expects the economy to grow at 0% in FY21, while Swiss bank UBS projected the country’s economy to contract 3.1% if mobility restrictions largely stay in place until end-June and economic activity returns to normal by end-August.
The country’s eight infrastructure sectors contracted by a record 6.5% in March after touching an 11-month high in February, data released by industry department last month showed. India’s manufacturing and services Purchasing Managers’ Index have also slumped to record lows in April, stoking fears that the economy is headed for a recession as a crushing lockdown shut businesses and kept consumers indoors.
India’s nationwide lockdown, considered the severest in the world, has led to massive retrenchment and loss of output. Unemployment rate climbed to a staggering 27.1% in the week to 3 May before dropping to 23.97% in the following week, data from the Centre for Monitoring Indian Economy showed. Around 121.5 million reported job losses in April, the survey said.
In the third phase of the lockdown, which ends on 17 May, the government has relaxed rules for restarting economic activities, especially for green and orange zones, which either don’t have any or have low incidences of coronavirus cases. However, businesses are treading cautiously given existing supply bottlenecks and migrant workers leaving for home states.
Aditi Nayar, principal economist at Icra Ltd, said she expects a realignment of prices only once economic activity resumes, to reflect the post-covid demand-supply balance.