Going by leading indicators, economic activity in India appears to have picked up, although marginally, as the restrictions stemming from the lockdown have been eased gradually across the country. While activity remains well below levels observed in the pre-COVID period, the pace of contraction in some of the economic indicators has moderated from the lows observed in April when the impact of the lockdown would have been more pronounced.
On the consumption side, data from GSTN shows that while e-way bills (both intra-state and inter-state) generated continue to contract, the pace of contraction has eased — from declining by a staggering 84 per cent in April to 54 per cent in May. The disaggregated data indicates a greater pickup in intra-state e-way bills as compared to inter-state bills, suggesting that perhaps inter-state restrictions continue to hurt the flow of goods. Over the course of the coming weeks, as restrictions are eased further, household consumption will rise as pent-up demand is satiated, though how and when this demand ebbs is debatable. On the production side, labour market data also suggests a gradual resumption of economic activity. As per CMIE data, the unemployment rate eased to 17.5 per cent during the week ended June 7, down from the peak of 27.1 per cent observed almost a month ago. As restrictions are eased further, and economic activity picks up, the labour market should slowly improve, although even a sustained pick-up may not translate to a recovery of all the jobs lost over the past few months as firms will focus on lowering their costs in light of continuing economic uncertainty. A similar trend is observed in electricity generation, and railway revenue (freight traffic) — while both continue to contract, the pace of contraction has eased, indicative of a resumption in some industrial and commercial activities. The RBI data also shows a spurt in transactions — the average value of IMPS transactions rose by 28 per cent in June, after contracting in May and April, while UPI growth is back to pre-COVID levels.
How economic activity shapes up over the course of the coming weeks and months will depend in large part on the spread of the virus and efforts to control its spread. Data volatility is likely to increase as the effects of the lockdown, and the response of households and firms to the health and economic uncertainty, play out over the coming weeks and months. However, it is possible that as in previous episodes such as demonetisation and GST, the formal sector gains at the expense of the informal sector. In that case, going forward, the official GDP estimates, which tend to capture the formal sector more accurately, may end up masking the pain in large parts of the informal economy.
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