Ratings agency ICRA said that the recovery in the Indian economy from the pandemic-induced lows seen in April 2020, both broadened and strengthened in September 2020. As many as nine of the tracked 15 non-financial high frequency indicators recorded growth in September 2020, while five posted a narrower year-on-year (YoY) contraction in that month. However, the agency cautioned that the sustainability of the upturn is unlikely to be universal, and that while fatigue may drive festive season sales, the momentum may subsequently subside.
Aditi Nayar, Principal Economist, ICRA, said, "The recovery in GST e-way bills, electricity, petrol and diesel in September 2020 provides a meaningful signal of a broader economic revival. The improvement in some of the other indicators, such as auto output, reflects a combination of pent-up demand, healthy rural sentiment, and inventory build-up, ahead of the upcoming festive season. This trend may persist in the coming one-to-two months, before settling at more sedate levels after the festive season is over. Sharp favourable base effects have contributed to the high performance of some outliers, such as the output of Coal India Limited (CIL), which are likely to be unsustainable. Moreover, we remain cautious regarding the improvement in non-oil merchandise exports, in the light of a fresh wave of Covid-19 infections in many trading partners. Overall, we await signals of the durability of the nascent upturn that emerged in September 2020," Nayar added.
Electricity generation turned around to a growth of 4.2% in September 2020 from the 3.3% YoY decline in August 2020, reflecting a broader economic recovery as well as a favourable base. "The healthy 9.6% increase in the generation of GST e-way bills on a YoY basis in September 2020, in contrast to the contraction of 3.5% in August 2020, signals a wider revival in economic activity," Nayar added.
Aggregate auto production recorded an expansion of 11.7% in September 2020, after having displayed sustained YoY contraction for the previous 22 months. However, the situation at the retail level was less positive; vehicle registrations remained below the pre-Covid levels in September 2020, across most automotive segments.
The pace of expansion in the output of CIL rose to 31.6% on a YoY basis in September 2020 (-23.5% in September 2019) from the 7.1% in August 2020 (-10.5% in August 2019). While the offtake levels did improve modestly in September 2020, the high growth in output is an outlier, which largely reflects the favourable base effect related to the deep contraction in September 2019, with output having been curtailed by excessive rainfall in that month.
In terms of the quarterly trends, there was a broad-based but uneven recovery in the YoY performance of most of the non-financial indicators in Q2 FY2021, relative to the lockdown-ridden Q1 FY2021. The output of CIL and motorcycles, thermal electricity generation, and rail freight turned around to a growth in that quarter from the YoY contraction in Q1 FY2021. As many as 11 other indicators continued to post a YoY contraction in Q2 FY2021, while hydroelectricity generation slipped back into a YoY decline in Q2 FY2021 from the muted growth in the previous quarter.
"Given the varied recovery displayed by the available indicators, we expect the contraction in India’s real GDP to narrow to around 11-12.5% in Q2 FY2021 from the sharp 23.9% recorded in Q1 FY2021," Nayar said.
The monthly indicators tracked by ICRA include production of passenger vehicles, motorcycles, scooters, vehicle registrations, output of CIL, thermal and hydro electricity generation, non-oil merchandise exports, ports cargo traffic, rail freight traffic, generation of GST e-way bills, domestic airlines passenger traffic, consumption of ATF, petrol and diesel, aggregate deposits and non-food credit of scheduled commercial banks.
