Home Business Delay in economic recovery as pandemic grips hinterland

Delay in economic recovery as pandemic grips hinterland

by BQ News Bureau
0 comment 30 views


More than five months after the Covid-19 outbreak was declared a pandemic, the world continues to reel under it, and most economies find themselves on shaky ground.

India is adding the highest number of Covid-19 cases to the daily global tally, and the peak is nowhere in sight. The pandemic is now gradually spreading from Tier 1 cities to small towns and rural areas, which have much weaker health infrastructure. The proportion of rural districts with 1,000+ cases increased to 47% on August 15 from 20% as on June 30, 2020. The unfettered spread of the virus means downside risks to our outlook are materializing, according to a CRISIL Report.

In May, CRISIL had forecast India’s real gross domestic product ¬†growth at -5 per cent for this fiscal, with risks firmly tilted to the downside. On the basis of epidemiological forecasts then, we assumed the pandemic would peak in the early part of the June-September quarter. Now, it seems, that is likely to happen only in the latter part of the quarter.

Though the economy has significantly opened up, high-frequency data, including mobility data, broadly shows plateauing of economic activity at sub-normal levels in June-July, with slight uptick in August for select indicators. The reintroduction of containment measures, particularly in Tier 2/3 cities, risk averse behaviour of consumers and restrictions on some services such as airlines, sports, recreation and hospitality, are keeping economic activity depressed.

The Purchasing Managers’ Index (PMI) for manufacturing and services also seems to be plateauing under 50 levels, indicating contraction in economic activity. Air quality and traffic congestion data indicate sub-normal economic activity. And petroleum product consumption, Goods and Services Tax collections and vehicle registrations mirror these trends. Power consumption is perhaps the only indicator to show on-year growth in August, which might be difficult to sustain in the evolving economic landscape.

With retail inflation refusing to climb down below the upper limit of 6 per cent for two quarters now, Reserve Bank had little choice than to pause its rate cutting spree in the latest monetary policy meet. It also refrained from giving numerical forecasts of either inflation or GDP for the current fiscal, except for stating that the economy is expected to be in recession and inflation could ease in the second half.

Leave a Comment

Related Posts