Gradual recovery: How economy is inching back to normalcy

In May, as it was becoming clear how prolonged and severe the pandemic-induced shock to the industry would be, several corporate leaders glumly predicted a recovery may take a year or more.

Forget the perceived fall in India’s potential growth rate for now, some credible evidence seems to have emerged lately of a return to what could be called economic normalcy. This is a big positive, and exhibits the resilience of each segment of the economy to overcome a gripping crisis.

In May, as it was becoming clear how prolonged and severe the pandemic-induced shock to the industry would be, several corporate leaders glumly predicted a recovery may take a year or more.

September saw a steeper jump in activities than July or August, leaving far behind the nadir hit in April. Manufacturing activity, as measured by Purchasing Managers Index (PMI), jumped to its highest level in over eight years in September, as flow of new orders saw a strong rebound. Electricity generation, a close proxy of economic activities, rose for the first time in seven months in September, registering a decent 4.6% growth, on year.

Railway freight earnings were up 13.5% on year in the month, bucking the trend of being in deep negative territory during March-July and improving significantly upon the marginal decline seen even in August. Freight tonnage had turned the corner in July itself, but the recovery was partly aided by discounts to bulk consumers.

Petrol sales were up 2% annually in September, the first month in the ongoing fiscal, to post a positive growth in the sale of this key auto fuel. Petrol consumption has been gradually improving due to higher mobility of passenger vehicles on the roads. Local intermittent lockdowns by various states and heavy rainfall, however, continue to dampen diesel consumption by affecting interstate movement. Opening of schools and other commercial institutions will likely take diesel demand to pre-Covid levels soon.

An official source told FE that merchandise exports in September were expected to turn positive for the first time since February, and the rate of expansion could be “close to double-digit level”. Exports had witnessed a record 60.3% crash, year on year, in April, although the contraction subsequently narrowed to just 12.7% in August, as lockdown curbs were substantially eased since June.

Furthermore, data released on Thursday showed the goods and services tax collections in September where 4% higher than in the year-ago month, at `95,480 crore. This is the first time the collections in any month this fiscal to have exceeded the year-ago levels. Of course, a late fee/penalty waiver deadline helped the September GST mop-up, but it is nevertheless encouraging and reflects a pick-up in economic transactions in August. The September GST collections (concerning August sales) were a steep 10.4% higher than the August mop-up.

Industrial production data, available for up to August, also show a graded pick-up in industrial activity in the country. Index of industrial production shrank by 10.4% in July, against a deeper 15.8% contraction in the previous month. The contraction in output was a painful 57.3% in April. The eight key infrastructure sectors contracted by 8.5% in August, against an 8% fall in the previous month. Although these sectors shrank for a sixth straight month in August, the pace of decline has narrowed from a record 37.9% in April.

Electricity supplied in the first 14 days of September was only 0.9% higher than the corresponding period last year, signaling that industrial and commercial activities picked up really fast in the second half of the month.

A number of established agencies have projected a steeper GDP slide (some expect it to be as much as 15%) in FY21 than assumed earlier, after the government announced a record 23.9% contraction, the sharpest among the G-20 economies, in the June quarter. While most agencies have predicted a recovery in FY22 (S&P projects a 10% expansion next fiscal), some of them have cautioned that it will be greatly aided by a favourable base and a meaningful rebound will take time to materialise. S&P expects a permanent loss of 13% in output over the next three years.

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