India’s months-long-lockdown may not have succeeded in flattening the infection curve but it has flattened the economic growth curve, the latest edition of the Mint Macro Tracker shows. 14 of the 16 high-frequency indicators considered in the tracker were in the red (below their five-year growth trend) in April. Only two indicators – retail inflation and import cover- were in the green (above their five-year growth trend).
This is the worst performance of the Indian economy since the tracker was launched 19 months ago. The Mint Macro Tracker, launched in October 2018, provides a monthly state-of-the-economy report based on trends in sixteen high-frequency indicators across four segments: consumer economy, producer economy, external sector, and ease of living. India’s economy was struggling even before covid-19, the tracker shows. Now, it has entered a deep coma, with almost all indicators witnessing a record plunge.
Unsurprisingly, all four indicators of the producer economy are now in the red. The composite Purchasing Managers Index (PMI) was just 7.2 in April, the lowest recorded reading globally. A reading below 50 on the index signals a contraction.
Rail freight traffic shrunk 35%, the sharpest fall since 1990. Production in the eight core infrastructure industries, which is recorded with a lag, fell 6.5% in March, the sharpest fall in nearly 8 years. Bank credit growth, also available with a lag, fell to a 29-month low of 6.7% in March. The more frequent fortnightly data on bank credit released by the Reserve Bank of India (RBI) suggests no material improvement in bank credit growth in April and May so far.
The consumer economy sector was even more severely battered. Tractor sales declined by a record 79% in April. Automakers made zero domestic sales in April, and the last available official data released by Society of Indian Automobile Manufacturers (SIAM) for March shows that domestic sales of passenger vehicles had declined 55% during the month. With international and domestic flights suspended all through April, the domestic air traffic also drew a blank in April. Official data as of March shows a 33% decline in air passengers carried during the month.
RBI (Reserve Bank of India) Governor Shaktikanta Das, while delivering an emergency rate cut on Friday, said that the fall in private consumption is going to pull down India’s GDP (Gross Domestic Product) growth into negative territory this fiscal even as he stopped short of providing a forecast.
Investment banks haven’t been so shy and i-bank economists are already forecasting a recession. Goldman Sachs’ Prachi Mishra expects real GDP growth to be -5% this fiscal while HSBC’s Pranjul Bhandari expects India’s GDP to fall 2% over the same period. Ratings agency Moody’s has cut its GDP growth forecast to negative from 0% earlier, without specifying an exact estimate.
The only silver lining lies in India’s external sector report card with India’s import cover at 15 months, the highest levels it has seen in five years. The rise in import cover however masks the weakness in the domestic economy, which has led to a slump in imports and raised the ratio. The other external sector indicators-trade balance, labour-intensive exports, and the currency rate-remain in the red. India’s trade balance as a percent of total trade slipped in the red in April (-24.6) as exports fell by a record 60% and total trade shrunk. The decline in labour-intensive exports was particularly sharp (-94.5%). However, the decline in the value of rupee against the dollar softened in April. More recent data shows that the rupee has gained in strength in May.
The lags in the rural wage and inflation data have made it tougher to read the picture on the ease of living front. The Consumer Price Inflation (CPI)—at 5.8%–was trending in the red as of March. The RBI expects inflation to remain firm in the first half of the current financial year but fall below the 4% target towards the later half of the year.
As India limps back to business, there is likely to be a small bump in consumption in the weeks ahead as people make urgent purchases they had put off for some time. But beyond that rebound, the outlook appears bleak. With massive job losses across sectors and the fear of the virus still limiting mobility in high-burden richer states, consumption is unlikely to recover soon. And given the uncertainty, investments too are likely to get postponed. With exports already in a slump, that leaves only one engine to drive the economy: the government.
It remains to be seen how far that engine is able to drive India’s growth locomotive in the coming months.