The pick-up in economic activity after the easing of lockdown is now looking to be shortlived, with indicators including workplace mobility trends and business resumption indices plateauing and remaining below the pre-pandemic levels after mid-June. Amid rising COVID-19 cases across the country, the pickup seems to have been driven by the pent-up demand, raising concerns of excess supplies after this phase, which is then likely to result in a lower-than-expected growth in the second half of 2020-21 financial year.
The worst-affected states — Maharashtra, Delhi, Tamil Nadu — accounting for 60 per cent of the cases have the lowest levels of workplace mobility, Japanese financial research firm Nomura said in a report. The economic uncertainty is arising as the top 12 worst-affected states, which comprise approximately 84 per cent of the pandemic cases, account for about 66 per cent of the country’s GDP, it said.
“The recent evidence that mobility has started to plateau after the initial acceleration – whether due to public or private reasons – amid a rising number of COVID-19 cases nationally, suggests a rising risk that, after an initial burst, activity may start to stabilise at a level that is still substantially below pre-pandemic levels. Indeed, at the regional level, flattening appears to be taking place across most states…if consumers remain cautious, as reflected in the mobility curve, while the supply-side continues to catch up, then the risk is that firms could become saddled with excess inventories after the initial pent-up demand phase, leading to lower-than-expected growth in H2 FY21,” Nomura said in its report.
Google’s workplace mobility index rose by 37 percentage points by mid-June from April (on a 7-day moving average basis) but since mid-June, the mobility curve has plateaued, with the workplace mobility index worsening by nearly 2 percentage points, despite the continued relaxation of measures under Unlock 1.0.
Restricted activity could be the consequence of public intervention in the form of recurring lockdown restrictions imposed at local levels or privately driven with individuals making a conscious decision to practice social distancing due to the alarming rise in infections, it said. The incremental tightening of lockdown measures at local level may also be one of the reasons behind the plateau in the mobility curve.
The pace of India’s recovery out of the pandemic will be determined by how quickly activity normalises across states, Nomura said. It expects India’s GDP growth in April-June to plummet to -15.2 per cent from 3.1 per cent, which is then expected to remain in the negative territory for the next three quarters (-5.6 per cent in July-September, -2.8 per cent in October-December and -1.4 per cent in January-March next year, averaging -6.1 per cent in FY21).
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