Economic indicators signal the worst may be over. But a recovery is some distance away
Economic activity in India has rebounded from the lows observed in April with both demand and supply side indicators exhibiting a steady improvement in the subsequent months. But while the worst may well be over, even as the normalisation of economic activities to pre-COVID levels is still far from done, there are indications of a plateauing at relatively lower levels. Thus, the government’s optimistic talk of “green shoots” needs to be tempered with a dose of hard reality.
On the consumption side, GST collections have risen from Rs 32,300 crore in April to Rs 91,000 crore in June. While part of the rise in the June collections may be on account of payments for previous months, the sharp rise in e-way bill generation signals a pick-up in activity. E-way bill generation for intra-state movement of goods in June was down only 7.9 per cent over the same period last year, while inter-state collections were down about 20 per cent — signalling a sharp rebound in interstate movement post the easing of travel restrictions. On the production side, the PMI manufacturing index has risen to 47.2 in June, inching closer to the 50-mark that distinguishes between a contraction and expansion. Similarly, power demand has picked up, as have e-toll collections. The services sector, though, continues to fare poorly, suggesting a two-paced recovery. There are also signs of healthy rural economic growth, with area under kharif sowing seeing an increase. Sales of two-wheelers and tractors — barometers of rural demand — have risen.
However, data also suggests that the pace of recovery may be slowing down. The unemployment rate, which had spiked to 23.5 per cent in May as per CMIE, is down to 11 per cent in June, but the declining trend appears to be flattening out. A similar trend is observed in Nomura’s google mobility index. It is possible that the spurt in growth observed over the past month or so is temporary, driven by the ramping up of production facilities to replenish the stocks that had run dry during the lockdown. Restrictions on activity owing to localised lockdowns, and self-imposed curbs by individuals, may lead to the economy operating at below pre-COVID levels, at least in the short-run.
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