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CLEARING THE FOG ON ECONOMIC RECOVERY
Read more on - Polity | Economy | Schemes | S&T | Environment
- All is Well: In the hurry to declare "All is Well" with the Indian economy, month to month comparisons of economic indicators (within 2020) are being made. That is not a standard practice, but year-on-year (y-o-y) comparison is. So Indian economy is better in Sept-Oct 2020 compared to April-May 2020, but not w.r.t. 2019.
- Twenty One parameters: A comprehensive picture emerges when we track 21 economic indicators for Sept-Oct 2020, on a y-o-y basis with 2019. A straight learning is that 17 of the 21 are doing poorly. And that, when in 2019, the economy already was in a slowdown. So the comparison of 2020 is with a low /weak base anyway.
- Two more learnings: The govt. is short of revenues, and is unable to really spend big (though it must be wanting to). And rural India is not doing as well as preceived.
- Indicator-wise study:
- Domestic car sales: Two ways to study this - either by sales data given by industry body, or by actual new registrations at the RTOs across India. The first may indicate units despatched to dealers and not actual final sales, while the second is more indicative. So cars registerd in Oct 2020 were 8.8% lower than in Oct 2019, and that was due to Diwali being in Nov 2020 (and Oct 2019). From Sept to Oct 2020, sales went up by 27%, largely as many people who could buy cars (but had not) are now buying cheaper cars, due to Covid fears (to avoid public transport).
- Two-wheeler sales: Oct 2020 was 26% lower than Oct 2019, and even lower than 2018. So the aspirational middle classes are in trouble, for two straight years now. Lot of inventory is piled up at dealers' end, in the hope of festival sales. Registration data is not fully integrated (some states not available) and was 1.04 million in Oct 2020 (Industry data 2.05 m)
- Tractor sales: In Oct 2020, 55% more tractors were registered with RTOs, compared to Oct 2019. The rural rich clearly are doing much better this year.
- Bank retail loans growth: Sept 2020 saw outstanding loans of banks grow by just 9.2% (lowest in 10 years). Half of retail loans is home loans, which grew by only 8.5%. Two factors at work - ultra-cautious banks, and wary borrowers (lost jobs and crashed confidence).
- FMCG volumes: From July to Sept, the volume growth for HUL was just 1%, compared to 5% last year. It was just 1% even for Jan-March 2020 period!
- Non-oil, non-gold, non-silver imports: Consumer demand is best seen here. Oct 2020 saw an 8.3% contraction. But it is reducing each month.
- Petro product consumption: Opening up of the lockdowns has led to higher volumes, but Sept 2020 was 4.5% down compared to 2019. Aviation sector's low pace is responsible for it.
- Gross electricity generation: With industries opening up, it has gone up. Since more people are at home, domestic consumption is also up. That has made up for losses in consumption at offices. Sept. 2020 consumption was higher by 4.4%.
- MGNREGS work: Since crores of Indians left cities and rushed to villages, MGNREGS work has exploded. Sept 2020 was 88% higher than Sept 2019, and even at just Rs.202 per day (average), people are ready to work. This is the true rural story, other than the 'flying tractors'!
- LPR: The Labour Participation Rate (LPR) is the ratio of labour force to the above 15 population. This LPR was reducing for many years now as those not getting jobs simply were dropping out (not searching any more). From 47% in Jan 2016, it went to 35% in April 2020, and is at 40% in October 2020. It was at 42% in Oct 2019. (MGNREGS jobs are counted here)
- Unemployment rate: It was 7% in Oct 2020 against 8.1% in Oct 2019, due to two factors - more MGNREGA jobs, and lower LPR. So the sheer number of people looking for jobs is quite low now!
- CV Sales: Faster sales directly mean more activity in infrastructure and industrial sectors. CV sales were 30% down in Oct 2020, after they had dropped by 23% in Sept 2019. The low base too has lowered more.
- Bank lending to industry: Banks aren't willing to lend to industry any more, and it's the same today. For Sept 2019, it had grown by 2.7%, and in Sept 2020, it did not grow. This means corporates are not investing at all!
- Rail freight revenues: It is up sharply, due to large amount of foodgrains being moved across the country (free foodgrain scheme). Oct 2020 saw a jump of 15%. In addition, coal, cement, iron ore too is being moved, indicating that coming months will see more activity.
- New projects: These have crashed, and corporates aren't interested. Old ones are hanging fire too.
- Cement production: It was down by 3.5% in Sept 2020, after being down by 85% in April and 21% in May. As per KM Birla, crores of people who have left the cities and gone to village homes, are adding extra room(s) for the possibility for staying much longer. But even then, cement production is lower than in Jan 2020.
- GTR: All taxes have fallen, except for excise duty (petro). So Gross Tax Revenue is sharply down.
- Goods exports: Oct 2020 saw a 5.4% drop, compared to 1.7% in Oct 2019. Sept 2020 had seen a 5.9% growth, mainly due to countries Indian exports reach having recovered from Covid faster. The Western world is hit again, so exports are shrinking again.
- Inflation: Food inflation remained high, and was 7.3% in Sept 2020 compared to 4% in Sept 2019.
- Summary: So in pure growth terms, Indian economy is struggling compared to 2019, or Jan-Feb 2020. That is something no one is discussing. And that is leading to policy measures that may not really help. Green shoots are still away.
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