Initial numbers seem to indicate the economy is on the mend as the lockdown lifts, but it is unclear if demand will hold up as unemployment rises
Movement of goods, which shrank sharply in March and April, picked up in May, in line with the relaxations
NEW DELHI :
Traffic congestion, power generation, port activity, vehicle registration and other high-frequency data point to the economy perking up as India reopens, recovering from a devastating slump as factories went idle and people were ordered to stay at home amid the coronavirus pandemic.
The evidence is tentative, but the economy appears to be gaining some momentum as India emerges from one of the world’s most stringent national lockdowns. It is, however, unclear whether the current pent-up demand after a two-month lockdown will sustain as joblessness and pay cuts have been widespread.
Still, there has been a marked sequential improvement in demand-side indicators such as auto sales and electronic permits raised by businesses for transportation of goods (E-Way bills), according to a 3 June UBS Securities India Pvt. Ltd note.
“Things are improving on the supply side, which is evident from the movement of traffic, improvement in E-Way bills and power demand on a sequential basis. There are not many indicators at the moment to show that things are improving on the demand side," Tanvee Gupta Jain, an economist at UBS Securities, said in an interview.
Goods movement, which had contracted sharply in March and April, picked up noticeably in May, in line with the relaxations for resuming economic activities as part of India’s phased exit from the lockdown, Mint reported on 4 June.
As per auto majors, retail offtake increased over the last week. For example, Hero Motocorp's retail sales were 47% higher than wholesale dispatches, pointing to inventory drawdown, said Gautam Chhaochharia anaylst, UBS Securities, in a report.
India went under the lockdown on 25 March.
Economists are, however, cautious about calling it a recovery. One needs to watch out for how long the spike in economic activity will last, said N.R. Bhanumurthy, a professor at the National Institute of Public Finance and Policy, a think tank.
“This is mostly pent-up demand, which will help businesses clear some inventory, but I fear the spike could be short-lived due to the loss of income across the board," said Bhanumurthy.
The government is trying to strike a balance between combating the virus and limiting economic damage from the lockdown.
It has set in motion efforts to revive the virus-ravaged economy with a ₹20 trillion stimulus plan, mostly through bank credit.
To be sure, India has been facing economic headwinds much before the coronavirus pandemic created mayhem.
“Economic growth may take long to recover meaningfully. The risk aversion of consumers on virus fears (as cases continue to rise) and income uncertainty, worker shortages (migration to villages) will continue to be a drag to near-term growth," added Jain.
“The average run-rate of registration of new vehicles over the past two days was at 33% of pre-lockdown levels. E-Way bill generation has picked up over the last week and is at 67% of baseline levels," the report said.
This indicates that the lifting of curbs, except in containment zones, could help manufacturers, who are pinning their hopes on a recovery in consumption.
“UBS Evidence Lab data on traffic congestion for four large metro cities continues to show recovery in Bengaluru and Delhi, with traffic at 35-40% of baseline, but limited improvement in Mumbai and Pune," the report said.
Maharashtra has been the worst hit by the pandemic that has claimed more than 6,000 lives across the country.
India’s power and overall energy demand, which had nosedived, is also slowly getting to their pre-lockdown levels, Mint reported.
“Electricity generation recovered sharply towards the end of May, with the year-on-year (Y-o-Y) decline narrowing to just 1%, although data over the past three days was volatile, with generation down 22% y-o-y," the report said.
Also, the UBS report said rural India continues to register improvement. “Wholesale arrivals in wheat and rice are on track to normalization, with no spike in prices. Over 35m (million) families in rural India have demanded work under NREGA, 3x the number in April. Fertilizer sales were buoyant in May."