Indian economy shows signs of post-pandemic recovery

Like all other leading economies, the fastest-growing major economy had also taken a blow from the crisis which is now expected to cost the global economy up to US$8.8 trillion owing to severe disruptions in economic activities

June 25, 2020

Procurement of wheat from farmers by the Central Government agencies touched a record high of 38.2 million tonnes on June 16

India’s PMI Manufacturing and Services showed a lower contraction in May at 30.8 and 12.6, respectively, over April (27.4 and 5.4)

Total digital retail financial transactions via NPCI platforms rose sharply from Rs.6.7 trillion in April 2020 to Rs.9.7 trillion in May

Consumption of petroleum products increased by 47 per cent from 9.9 million tonnes in April to 14.6 million metric tonnes in May

Indian economy shows signs of post-pandemic recovery

The Indian economy is starting to show signs of recovery following a depression created by the global pandemic of the Coronavirus (COVID-19) disease. Like all other leading economies, the fastest-growing major economy had also taken a blow from the crisis which is now expected to cost the global economy up to US$8.8 trillion owing to severe disruptions in economic activities. Following a cyclical downturn, the Indian economy had begun to regain its pace with signs of an uptick in consumption and investment towards the end of Q3 2019-20, only to be interrupted by the pandemic. However, the Government of India’s comprehensive reform and relief measures worth around US$21 trillion (US$280 billion), or 10 per cent of the national GDP, has managed to revive economic confidence that has already led to a rise in consumption and a drop in unemployment. Here are some of the key improvements:

Improvement in Economic Indicators

Agriculture

  • Procurement of wheat from farmers by Government agencies touched a record high of 38.2 million tonnes on June 16, surpassing the earlier record of 38.1 million tonnes achieved during 2012-13. This was accomplished during the trying times of Covid-19 under the social distancing restrictions. Around 4.2 million farmers benefitted and a total amount of about Rs.735 billion was paid off towards the minimum support price (MSP) for wheat.
  • The procurement of minor forest products (MFP) under the MSP for the MFP Scheme in 16 states hit a record-breaking high with the procurement touching Rs.794.2 million. This proved to be a much-needed panacea in these distressing times of the COVID-19 pandemic, which disrupted the lives and livelihoods of tribals.
  • As on June 19, farmers have sown 13.1 million hectares of Kharif crops, 39 per cent higher than the corresponding period of last year with a big jump in area coverage under oilseeds, coarse cereals, pulses, and cotton.
  • Fertilizer sales surged by 98 per cent year-on-year in May 2020 (4 million tonnes), reflecting a robust agricultural sector.

The Government of India’s comprehensive reform and relief measures, worth around 10 per cent of the national GDP, have managed to revive economic confidence that has already led to a rise in consumption and a drop in unemployment.

Manufacturing

  • India’s PMI Manufacturing and Services showed a lower contraction in May at 30.8 and 12.6 respectively over April (27.4 and 5.4 respectively).
  • Electricity consumption saw a lower contraction in growth rates from (-) 24 per cent in April to (-) 15.2 per cent in May to (-)12.5 per cent in June (till June 21). In June, electricity consumption has continuously improved from (-)19.8 per cent in the first week to (-)11.2 per cent in the second week to (-)6.2 per cent in the third week.
  • The total assessable value of e-Way bills picked up by 130 per cent in May 2020 (Rs.8.98 trillion) compared to April 2020 (Rs.3.9 trillion), though lower than the previous year and pre-lockdown levels. The value of e-Way bills generated between June 1 and 19 stood at Rs.7.7 trillion.
  • Consumption of petroleum products, a key indicator reflecting consumption and manufacturing activity in the country, increased by 47 per cent from 9.9 million tonnes in April to 14.6 million metric tonnes in May. Consequently, year-on-year contraction in consumption growth of petroleum products was much smaller at (-)23.2 per cent in May against (-)45.7 per cent in April. In June, growth in consumption of petroleum products is expected to be still higher after one month of Unlock 1.0.

Services

  • Railway freight traffic improved by 26 per cent in May (82.6 million tonnes) over April (65.4 million tonnes), though still lower than previous year levels. The improvement is likely to continue in June in sync with growth in the movement of goods on National Highways.
  • Average daily electronic toll collections increased from Rs.82.5 million in April 2020 to Rs.368.4 million in May, rising more than four times. In the first three weeks of June, it has improved further to Rs.498 million.
  • Total digital retail financial transactions via NPCI platforms increased sharply from Rs.6.7 trillion in April 2020 to Rs.9.7 trillion in May. The trend is expected to continue in June driven by a sustained pick-up in real activity.

Monetary Indicators

  • With RBI’s efforts towards ensuring adequate liquidity, private placement of corporate bonds picking up sharply by 94.1 per cent (YoY growth) in May (Rs.840 billion) as compared to a contraction of 22 per cent in April (Rs.540 billion). June is likely to see a still larger placement as excess liquidity persists in the system.
  • Average assets under management (AUM) of mutual funds increased by 3.2 per cent to Rs.24.2 trillion in May 2020 from Rs.23.5 trillion in April 2020. The contraction in YoY growth in the indicator also fell from (-)6.9 per cent in April to (-)4.5 per cent in May.
  • India’s forex reserves stood at US$507.6 billion as on June 12, continuing to provide a crucial cushion to external shocks on the back of higher FDI, portfolio flows, and low oil prices. FDI in India recorded an inflow of US$73.5 billion in FY 2019-20, an increase of 18.5 per cent over the previous fiscal.

The Indian Government-imposed nationwide lockdown provided the much-needed time to ramp up the health and testing infrastructure in the country to effectively tackle COVID-19. Due to timely testing, treatment, and tracking, the number of people recovering from the virus is continuously improving, and active cases, as on date, are 41 per cent of the total cases in the country. The strict lockdown and social distancing measures, however, adversely affected the economy. On June 1, the country entered the ‘Unlock India” phase with a phased resumption of services and businesses. The Government and the RBI have taken prompt policy measures – both short and long term – in a calibrated manner to reinvigorate the economy at the earliest with minimal damage. Currently, efforts are afoot to return the economy to its pre-COVID-19 growth trajectory at the earliest – expected as early as the financial year 2021-22.