Multiple high-frequency indicators point to an uptick in economic and business activity over the last two months in the wake of the brutal second Covid wave — but with a clear caveat.
Wary of a re-surge, states continue partial movement restrictions. Result: some indicators that showed a significant recovery since May are beginning to flatten and remain below the pre-pandemic level.
Google Mobility Index data showed that on July 26, visits to retail establishments including restaurants, cafes and shopping centres, were down 20% compared to a pre-Covid baseline. This baseline is calculated as the median value of the corresponding day of the week during the five-week period between January 3 and February 5, 2020. On April 23 this year, a fortnight before the second wave peaked, visits were down a sharper 46%.
Similarly, on July 26, visits to public transport hubs like bus and train stations were only 11% down from the pre-Covid baseline.
Retail outlet visits could witness a further surge with movie halls reopening. Inox Leisure said it will reopen cinema halls in several cities including Delhi NCR, Lucknow, Jaipur, Kota, Surat, Anand, Bharuch, Rajkot, Hyderabad, Bengaluru, Manipal, Mysore, Belgavi, Raipur, Vijayawada, Dhanbad, Bhopal and Indore. PVR, the largest cinema chain in the country, said it will reopen its halls in select cities. Significantly, multiplex cinema theatres in malls are key drivers of footfall in these shopping centres.
E-way bill data also points to an uptick. Average daily e-way bill generation improved to 19.83 lakh in the first 25 days of July from 18.22 lakh in June. This indicator, a proxy for inter-state and intra-state movement of goods, was at 20.2 lakh the week ending July 25, compared with 20.4 lakh in the preceding week and 19.24 lakh in the first 11 days of July.
Yet, several experts concur that consumption levels remain subdued due to incomes hit by the pandemic, enhanced household spending on health and fears of a third wave weighing heavy.
The Nomura India Business Resumption Index (NIBRI) fell to 95.3 for the week ended July 25 from the high of 96.4 in the previous week — at levels from before the second wave but 4.7 percentage points below pre-pandemic levels. “…Mobility, railway freight revenues and GST e-way bill data suggest some stagnancy in July, even as the trade sector remains strong,” Nomura said in a note.
Domestic travel also recouped following the second wave. According to data sourced from DGCA, domestic air traffic rose 47% in June compared with May on the back of easing of travel restrictions and a dip in Covid cases. Around 3.11 million passengers flew in June on domestic routes compared with 2.12 million in May.
Passenger vehicle wholesales more than doubled to 2,31,633 units in June, compared with 1,05,617 units in the same month of 2020 which had witnessed massive Covid-related disruptions.
Although industrial activity was not affected significantly in the second wave, there is idle industrial capacity. “The second wave caused a setback to economic recovery. But industrial activity continued broadly as lockdowns this time were localised and implemented with Covid protocol. Things are gradually falling into place, there is a mood of cautious optimism. Consumption levels are still low as households have seen high health expenditure and have dipped into their savings to meet those expenses,” said Devendra Pant, Chief Economist, India Ratings.
CARE Ratings said that Gross Fixed Capital Formation — an indicator for investment in the economy — is expected to rise only marginally to 27.5% of GDP this fiscal from 27.1% in FY21.
“It had declined to 47.3% in Q1 of FY21. There has been a pick-up to 66.6% in Q3-FY21. Typically, a level of 78-80% is required before companies start investing in capital. At the aggregate level, this looks some time away. Therefore, capacity expansion is more likely in industries which have reached optimal utilization levels like steel or pharma. But it is unlikely to be generalised which is what is required to push up the gross fixed capital formation rate,” it said.
According to Nomura, the pace of vaccination and the risk of a third wave remain risks to growth. “The pace of vaccinations stagnated, with the month-to-date average in July at about 3.7 million doses/day. We currently forecast a faster pace of vaccination starting in August but the recent pace suggests risks are skewed towards a delay. With pandemic cases plateauing at an elevated level of about 39,000 new cases per day?, susceptibility to a third wave remains a key growth risk,” Nomura said.
This is underlined by the fact that as many as 40 crore people still remain vulnerable, according to the latest nationwide serosurvey by the Indian Council of Medical Research that estimated two-thirds of the population above the age of six as having been infected.
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