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Friday, September 25, 2020

Electricity to inter-state transport: Faster growth pick-up where Covid control better

Maharashtra, Tamil Nadu had 40% cases, but posted sharp rise in goods movement.

Written by Aanchal Magazine , Anil Sasi | New Delhi | Updated: August 17, 2020 7:07:32 am
The value of e-way bills, suggesting improvement in intra and inter-state movements of goods, also picked up strongly in June over May across states. (File)

A HEAT MAP based on state-wise Covid-19 data developed by the Department of Economic Affairs in the Union Finance Ministry reveals that economic indicators including electricity consumption, e-way bill generation and MNREGA work creation, are looking better in states with higher control over cases and recoveries.

While this may seem intuitive, it needs to be seen in the backdrop that economic recovery is crucially linked to a dozen states, which also account for 85 per cent of the Covid-19 caseload. Within states, the two biggest growth drivers — Maharashtra and Tamil Nadu — make up 40 per cent of confirmed cases.

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Electricity consumption for the whole country recovered to 106 billion units in June, a sequential improvement from 103 billion units in May. Compared with the previous year, the strongest recoveries were seen in Karnataka, Andhra Pradesh, Punjab and Chhattisgarh, according to the data.

The value of e-way bills, suggesting improvement in intra and inter-state movements of goods, also picked up strongly in June over May across states, but the rate of year-on-year growth was weaker in states such as Maharashtra, Tamil Nadu, Delhi and Haryana, which recorded a higher number of Covid-19 cases. E-way bills are required to be generated by a registered GST taxpayer for the movement of goods, if the value of the consignment exceeds Rs 50,000 for inter-state movement. It is a proxy for a pickup in manufacturing and consumption activity, signified by the improvement in interstate movement of goods.

Also, with reverse migration from urban to rural areas, work created under MGNREGA almost doubled on a year-on-year basis in June to reach 6,403 lakh person days. Maharashtra, the biggest Covid-19 hotspot and destination migration state, however, recorded a fall in MGNREGA employment in June both on a YoY and sequential basis, partly due to intra-state migrant workers returning to their jobs in cities.

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The Finance Ministry data uses a sequential comparison for Covid case count and other pandemic-related parameters, while the economic data sets are compared on a year-on-year basis. Two other economic indicators used in developing the heat map — GST collections and vehicle registrations — (not shown in the map) were more of outliers, showing no direct correlation with states’ performance on Covid-19 case recoveries. Delhi, Tamil Nadu and Karnataka were exceptions though with a strong pickup in vehicle registration in June on a sequential basis, the data showed. On YoY basis, states such as Tamil Nadu, Karnataka, Chhattisgarh, Tripura and Jharkhand recorded significant pickup in June.

Amongst the different economic indicators, the biggest improvement in June was seen in mobility indicators such as e-way bills with significant rise (on a YoY basis) seen in Andhra Pradesh, Telangana, Kerala, Assam and Jammu & Kashmir, along with MGNREGA work creation with states such as Tamil Nadu and Assam moving out of the red contractionary zone from the previous month.

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The other indicators — electricity consumption and vehicle registrations — remained subdued on YoY basis since the outset of the Covid-19 pandemic. GST collected in all states showed a sequential improvement in June, but slipped in July, reflecting an anomaly of the improvement in June being mainly due to extended return filing deadlines for large taxpayers.

One noteworthy trend among the two biggest states in terms of Covid-19 case recovery share — Maharashtra and Tamil Nadu — has been a corresponding improvement in economic indicators of electricity generation, e-way bills issuance, vehicle registrations, but divergent trend in MGNREGA work creation. While the work created under the scheme in June more than doubled to 376 lakh person days for Tamil Nadu, in Maharashtra, the work under the employment guarantee scheme dropped 31 per cent, a sign of reverse migration and intermittent lockdowns in industrial hubs. States such as Maharashtra, Uttar Pradesh, West Bengal, Assam and Bihar, have enforced localised lockdowns with some opting for weekend closures and some others for shutdowns in industrial hubs.

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But, the impact of reverse migration triggered by the pandemic on Indian states and sectors, as assessed by India Ratings, shows that the manufacturing firms in Delhi and Haryana are more susceptible to the reverse labour migration than the firms based out of Maharashtra and Gujarat. The top five migrants receiving states are Maharashtra, Delhi, Haryana, West Bengal and Gujarat. Based on the overall vulnerability of the states linked with high-to-low inter-state migrant dependency ratio (MDR) in the manufacturing sector, Ind-Ra has classified Delhi and Haryana as highly vulnerable with 93.52 and 51.74 MDRs and Maharashtra and Gujarat as moderately vulnerable with MDRs of 29.19 and 17.12, respectively.

The agency’s estimate put the manufacturing sector’s employment close to 6 million inter-state migrant workers and across different states. Construction sector, which is more dependent on intra-state labour, will have limited operational disruption as intra-state movement of people has been gradually relaxed. Manufacturing sector is facing high risk with unavailability of skilled labour adding to significant pressure on the output, leading to under-utilised capacity. Some micro, small and medium enterprises (MSMEs) are also witnessing challenges in meeting demand recovery from exports due to the labour shortage.

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This subdued resumption of business activity has also been reflected in the latest Nomura India Business Resumption Index, which remained broadly unchanged at 70.4 for the week ending August 2.

“While business resumption remains stuck at ~30pp below normal, hard data released so far (auto sales, electricity consumption) have improved in July. We believe the uptick in July activity data reflects post-lockdown normalisation and pent-up demand, but with daily cases continuing to pick up, the freeze in the NIBRI indicates a growing risk that the sequential improvement in activity could taper,” the research firm said.

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