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Covid second wave has a silver lining: limited economic impact

The ratings agency noted that India’s recovery from the lockdown-induced recession has been swifter than it expected (Bloomberg)Premium
The ratings agency noted that India’s recovery from the lockdown-induced recession has been swifter than it expected (Bloomberg)

March saw robust GST collections and electricity use but vehicle sales registration saw a greater decline than in February. Mobility levels in end-March were similar to end-February levels nationally but as the covid case-load rises, this could change in the coming weeks

Early signals from high-frequency data suggest that the economic effect of the second wave may be less potent than the first wave. Despite fast-rising cases and partial lockdowns in several towns and cities across the country, most states reported healthy goods and services tax (GST) collections and electricity usage numbers in March.

Yet, it is worth noting that the economic recovery still remains fragile and uneven, with several states still lagging behind considerably in economic activity. Vehicle registration data for March shows a much sharper year-on-year decline than in February, suggesting that the optimistic wholesale dispatches for the month reported by leading auto firms need to be interpreted cautiously. It also suggests that economic vulnerabilities persist, and may worsen if cases keep rising and mobility restrictions get tightened further.

Among large state economies, Tamil Nadu, Uttar Pradesh, and West Bengal led economic recovery, Mint’s state recovery tracker shows. Election-related spending in Tamil Nadu and West Bengal may have added to the economic boost in these states. Kerala, another election-bound state, also reported fairly healthy numbers across the four indicators considered in the tracker: public movement, electricity use, GST collections, and vehicle registrations. Apart from Delhi, Kerala and Tamil Nadu were the only large state economies which did not see any decline in vehicle registration in March.

The recovery tracker looks at the 12 largest state economies individually (each having at least 4% share in India’s gross domestic product or GDP), and clubs mid-sized economies (2–4% of India’s GDP) and small ones (1–2% of India’s GDP).

Uneven Recovery

Around 1.65 million vehicles were registered across the country in March, compared to 2.3 million a year ago, a sharp year-on-year decline of 29%. Compared to February’s levels (1.52 million), March numbers reflected a 9% sequential improvement.

Delhi saw the highest growth in March, reflecting a 47% year-on-year rise. Kerala saw a 15% rise in vehicle registrations while Tamil Nadu’s figures were roughly the same as the year-ago period. All other states recorded a year-on-year decline. West Bengal (-44%), Rajasthan (-44%) and Uttar Pradesh (-40%) had the worst showing among major states. West Bengal recorded healthy vehicle registration numbers for most of the pandemic period but has been witnessing sharp declines in recent months, albeit on a higher base.

Despite subdued registration, vehicle dispatches to wholesale dealers saw healthy growth last month, the latest sales data from leading auto companies shows. A part of wholesale dispatches simply add to dealer inventories and hence dispatches are seen as a leading indicator of sales while vehicle registration data provide a more real-time picture of consumer demand.

While electricity use has been registering year-on-year growth for the past seven months, March saw the highest rise of the pandemic period. The total consumption across India in March was 123.1 billion units, compared to 100.2 billion units last year. All states saw a hike in their power consumption. Among major states, West Bengal (37%) and Uttar Pradesh (37%) led growth in power consumption. Mid-sized states (39%) saw the highest growth.

Restricted Mobility

Nationally, mobility levels in March, at 94% of pre-pandemic levels, were roughly similar to that in February. But there were wide inter-state and inter-district variations across the country.

States such as Maharashtra, Madhya Pradesh, Gujarat and Punjab that have been reporting a high number of new infections saw March mobility levels decline by 2-3 percentage points compared to February levels. Five districts in rural Maharashtra saw mobility levels decline by at least 15 percentage points over the past month.

By end-March, some of the larger state economies were recording sharp declines in mobility compared to earlier weeks, Google mobility data shows. Overall, small and medium sized states registered higher mobility levels in March compared to major state economies.

The large state economies are on average more urbanized than the smaller ones, and have borne the brunt of covid cases in both the first and the second wave. The concentration of covid cases in the largest state economies was one big factor behind India’s sharp economic plunge last year.

While the top six state economies - Maharashtra, Tamil Nadu, Uttar Pradesh, Karnataka, Gujarat, and West Bengal - have closed the gap in mobility and economic activity with the rest of the country, the fresh wave of infections may once again widen the gap.

Source: MoSPI
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Source: MoSPI

The top six state economies together account for half of the country’s gross domestic product (GDP). Their fate will be key to India’s economic revival.

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