Green shoots of economy may not live long; September recovery may fade away after festive season

Green shoots of economy may not live long; September recovery may fade away after festive season

The upturn in the Indian economy may persist in the coming one-to-two months, before settling at more sedate levels after the festive season is over.

India’s economy saw a nascent upturn in the month of September as nine of the tracked 15 non-financial high-frequency indicators such as GST e-way bills, electricity, petrol and diesel sales, etc recorded growth in the month. The improvement in some of the other indicators, such as automobile output, also reflected a combination of pent-up demand, healthy rural sentiment, and inventory build-up, ahead of the upcoming festive season, said an ICRA report. However, the upturn is unlikely to last for long. This trend may persist in the coming one-to-two months, before settling at more sedate levels after the festive season is over, said Aditi Nayar, Principal Economist, ICRA.

Sharp favourable base effects have likely contributed to the high performance of some outliers, such as the output of Coal India Limited (CIL), which are likely to be unsustainable. Moreover, the rating agency remained cautious regarding the improvement in non-oil merchandise exports as there has been a fresh wave of Covid-19 infections in many trading partners.

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While electricity generation recorded a growth of 4.2 per cent in September 2020 from the 3.3 per cent on-year fall in August 2020,  generation of GST e-way bills increased 9.6 per cent on-year in contrast to the contraction of 3.5 per cent in the previous month. The aggregate auto production also jumped 11.7 per cent in September, after having displayed sustained on-year contraction for the previous 22 months. However, the situation at the retail level was less positive and vehicle registrations remained below the pre-Covid levels in the month.

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Meanwhile, on the back of some recovery in the economy, ICRA expects the contraction in India’s real GDP to narrow to around 11-12.5 per cent in Q2 FY2021 from the sharp 23.9 per cent fall recorded in the first quarter of the current fiscal year. The World Bank has recently estimated that India’s GDP may contract by 9.6 per cent in the full fiscal year 2020-21. Earlier the bank had estimated a contraction of 3.2 per cent for the full year in June 2020.

 

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