State of the Economy – Tracking the Uneven Recovery

Even after recording GVA growth of 1.0% during Dec’20 quarter (GDP growth – 0.4%), the uncertainty regarding continued momentum in recovery remains high. The available high-frequency data for Jan-Feb’21 reinforces the fear with slight moderation in growth in some of the segments. Another cause of worry is the sharp increase in WPI inflation which touched 4.2% in Feb’21, the highest in over two years. Here is a look at the performance of some of the key indicators.

Freight –

Among the lead indicators of industrial activity is the freight traffic movement by Railways. As per the monthly report by Department of Economic Affairs and RBI bulletin for Feb’21, railway freight traffic grew by 8.7% in Jan’21 and 8.1% in first 20 days of Feb’21. While the growth is significant, it is marginally lower than average growth of 8.9% in Nov-Dec. However, in absolute terms, traffic carried in Jan’21 at close to 120 million tons, surpasses the monthly record of March’19 (not March’20), making it difficult to arrive at any firm conclusion with regard to acceleration or slowdown in recovery.

Freight movement through ports has also picked up after contracting till Oct’20, a sign of revival in international trade. Against decline of about 2% in Oct’20, port traffic has recorded growth of close to 4% both in Nov-Dec as well as Jan-Feb, implying continued momentum. However, aviation continues to under-perform with marginally higher decline in Jan’21 against Dec’20.

The other lead indicator is highway toll collections which reflects freight as well as passenger movement. Toll collection, in terms of numbers, recorded month-on-month growth of as much as 60% in Jan’21, on top of 115% in the previous month. In value terms, however, growth is lower at 48% and 83%. This is one indicator where growth rate is higher than Oct-Dec quarter.

Fuel & Power

Another indicator of industrial activity is consumption of electricity as over 40% of power is consumed by industries. Power consumption grew by 4.8% and 7.3% in Jan and Feb. Power consumption continues to accelerate after averaging less than 5% in Nov-Dec. A related sector is petroleum & petroleum products, which reflects goods and passenger movement. As per PPAC (Petroleum Planning & Analysis Cell), total consumption of petroleum products declined by 4.3% in Jan-Feb against decline of 2.3% in Nov-Dec. However, this doesn’t exactly reflect industrial or passenger activity as part of the decline would also be due to sharp increase in prices. Consumption of Diesel, largely used for goods transport, declined by 5.3% in Jan-Feb almost the same as 4.8% in Nov-Dec.

Manufacturing Sub-sectors

An important indicator of economic activity and sentiments is PMI (Purchasing Managers’ Index), economic indicators derived from monthly surveys of private sector companies. As per RBI bulletin, manufacturing MPI expanded to 57.7 in Jan’21, up from 56.4 in Dec’20. A figure above 50 indicates expectation of higher activity. Yet, this is only the expectation of sector players and does not necessary imply a similar performance. In the services sector, the recovery is still tentative. PMI services was 52.8 in Jan’21, although up from 52.3 in Dec’20.

In terms of specific segments, steel consumption recorded growth of 5.8% in Jan, improvement from growth of 4.9% in Dec’20. As per SIAM (Society of Indian Automobile Manufacturers), passenger vehicles registered growth of 11.1% in Jan and 17.9% in Feb, higher than average of less than 10% in Nov-Dec. However, 3-wheelers sales continue to decline, although down to 34% in Feb from about 58% in the previous three months.

An important element is pickup in highways construction. As per the ministry, over 1,360 km of highways was constructed in Jan, 38% higher than previous year. The figure, however, is lower than Dec’20 when 1,560 km was constructed, almost 60% higher than previous year. Despite slight moderation, it is difficult to consider this as a sign of slowdown.

Taxes etc –

The most definitive sign of economic activity is the growth in indirect tax collection. For the month of Jan, GST collection reached almost Rs 1.2 lakh crore, 8.1% growth over previous year and Rs 1.13 lakh crore in Feb, slightly lower increase of 7%. Even though the growth rate is marginally lower than Dec’20 quarter, the absolute value of tax collection gives reason to believe that the momentum is maintained. Other than GST collection, economic activity is also captured through e-way bills growth, which reflects actual movement of goods. Generation of e-way bills by manufacturers has grown more sharply, by 10.5% and 12.5% in Jan and Feb. Growth is higher than average growth of 10% in Nov-Dec. However, growth in intra-state movement of goods is almost double that in inter-state movement. Whether there is a pattern in this would be clear only after sufficient data is available.

The industrial activity is also evident from the number of people it employs which, in turn, affects the demand for work under government program, MGNREGS. As per the report, the demand for jobs under MGNREGA has registered a huge drop, from 56% in Dec’20 to 37% in Jan and 19% in Feb. Rural unemployment has come down to 5.8%, lowest since July’18.

Credit Growth –

Credit growth is recording gradual recovery with growth of 6% in Jan and 6.6% in Feb, marginally better than about 5.8% in Nov’20. However, it is too early to expect borrowings to pick up any time soon considering the uncertainty related to recovery and modest capacity utilization at less than 65%. The ray of hope is that personal loans continue to record reasonable growth of close to 10%. Continued consumer demand may help industries improve their capacity utilization and step-up investment spending over a period of time.


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