India witnessed a nascent recovery in the month of September after the pandemic-induced downturn kicked in from April this year, but the momentum may not last, says ratings agency ICRA.
The agency tracked 15 non-financial high-frequency indicators such as goods and services tax e-way bills, electricity, petrol and diesel sales, and found that nine of them had grown during 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, the report said.
Goods and services tax e-way bills grew 9.6% on a year-on-year basis in September this year, in contrast to the contraction of 3.5% in August. This signals a “wider revival” in economic activity, the report added.
Power generation recorded a yearly growth of 4.2% in September, as against a 3.3% fall in August. The aggregate auto production also jumped 11.7% 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, the report noted.
The sustainability of the upturn is unlikely to be universal, the report cautioned and added that this uptick may last for only a couple of months, before settling at more sedate levels after the festival season is over. The agency remained cautious regarding the improvement in non-oil merchandise exports as many trading partners have experienced a fresh wave of Covid-19 infections.
For the second quarter of FY2021, ICRA expects the gross domestic product contraction to narrow to 11-12.5% from a 23.9% plunge in the first quarter. It is the lowest since India started reporting growth date on a quarterly basis in 1996 and the sharpest fall among global economies.
India was under a countrywide lockdown from March 25 to May 25 to contain the spread of coronavirus, and this brought all economic activity, barring the supply of essentials and healthcare facilities, to a grinding halt. The worst-hit sectors were construction, manufacturing and trade and hospitality. Transport, manufacturing, mining, construction, and services, which account for about two-thirds of the economy, remained dysfunctional for the two-month period.
Earlier, the World Bank had revised downwards India’s annual gross domestic product contraction to 9.6% from 3.2% projected in June. Many other multilateral agencies and investment banks have estimated that the Indian economy will shrink between 5% and 15% in the current fiscal year.