Home >News >India >India’s economy not out of the woods yet

NEW DELHI : After improving sharply in May, India’s economic improvement seems to have stalled in June, the latest update of the Mint Macro Tracker shows. As of June, 12 of the 16 macroeconomic indicators considered in the tracker were in the red (below their five-year growth trend), the same as last month, while three were in green (above their five-year growth trend) and one maintained trend.

The current reading is only slightly better compared to the lows of April, when 14 of the 16 indicators were in red, the worst reading since the tracker was launched in October 2018.

The trends in the tracker broadly mirror the trends in public movement, captured by Google, which suggest that public movement picked up significantly in May and early June but the improvement halted in the second half of June and reversed in the first half of July. In some of the most prosperous parts of the country, public movement fell in June as the epidemic picked up pace and local lockdowns were re-imposed.

Both production and consumption have been hit hard, the macro tracker shows. All four indicators of production activity - the composite Purchasing Managers’ Index (PMI), core infrastructure sector growth, bank non-food credit, and rail freight traffic - were in the red for the third successive month. The composite PMI, which measures combined manufacturing and services output improved to 37.8 from 14.8 in May but remained below the crucial 50-mark boundary, which separates an expansion in activity from contraction. The PMI reading for India suggested a contraction compared to the month-ago period. Rail freight traffic fell 8% in June compared to the year-ago period. Core sector growth (published with a month’s lag) contracted in May. Bank (non-food) credit grew only 6.8% in May. This is in fact slightly slower than the 7.3% rate recorded during April, the worst phase of the nationwide lockdown.


Three of the four consumption indicators continue to be in the red. Passenger vehicle sales (-61%) and the number of domestic air passengers (-84%) both contracted sharply in June. Only tractor sales saw a sharp growth (22%) in June. The on-year growth in broadband subscribers (18%), data on which is available with a two month lag, was the lowest in over five years as of April. The number of both broadband and mobile subscribers in India declined month-on-month as millions of users discontinued their subscriptions.

The trends so far suggest that India’s economic recovery may be a long and arduous process. The economy was already losing momentum for many months before the pandemic hit. The pandemic-induced lockdown seems to have delivered the final blow.

Unlike the sudden and synchronized lockdown, the ‘unlock’ phase has been slower and heterogeneous, with some of the economic hubs of the country re-imposing lockdowns again during this phase as cases and deaths have surged. The uncertainty over the spread of the pandemic has clouded the economic outlook and dampened sentiment.

“We see a rising risk that the sequential improvement in activity may fade after the initial post-lockdown normalization," wrote Nomura economists Sonal Varma and Aurodeep Nandi in a note to clients dated 27 July. The investment bank expects India’s GDP to contract (-) 5.0% in 2020 and (-) 6.1% in fiscal 2021.

The pandemic-induced disruptions in supply chains have led to a spike in inflation, and the shutting down of businesses have hurt jobs. All four indicators of the ease of living scorecard - CPI inflation (6%), core CPI inflation (5%), real rural wage growth (-2%) and job outlook (2%) - were in the red as of June.

India’s external sector is more of a mixed bag, and perhaps reflects the lone bright spot in the economic report card. The contraction in merchandise exports ebbed in June in India but imports continued to contract at a sharp pace as domestic demand remained weak, leading to a record trade surplus.

Overall, the report card suggests that the Indian economy is not out of the woods yet.

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