COVID-19: Amid India’s battle against the pandemic, it would now be its war against the anemic economy

Fumigating another virus afflicting economy: A farmer fumigates his field to protect it from pests and insects, at a time India is fumigating towns and cities to protect citizens from the COVID-19 global pandemic.
  • World Bank predicts India’s GDP growth to fall 1.5% to 2.8% in FY21.
  • Winning war against coronavirus pandemic will have to be followed by another war against anemic economy.
  • Farm stress, banks’ NPAs, sluggish MSMEs are big challenges.

Aditya Hore

New Delhi: Amid intense speculation of extension of the 21-day nationwide lockdown to contain the global pandemic of COVID-19, India is poised to pay immediate attention to its sagging economy as its GDP growth, according to the World Bank, could plunge up to 2.8 per cent, instead of the earlier estimates of 6.3%.

The pandemic has adversely affected Indian economy as a whole. To restart it, the government is likely to allow some bare minimum economic activity amid extended lockdown. To start with, the government is likely to focus on agriculture sector as it is now harvesting season for the Rabi crops in India.

The lockdown could result in a huge loss of significant economic activity for an even longer period of time. High frequency indicators for March and early April are already reflecting the impact of a sudden stop in economic activity.

From sales of petroleum products to port activity and a spike in unemployment, the data is beginning to reflect an economy at a near standstill.

Unemployment Rate

While India does not have official high frequency labour market data, the unemployment rate put together by the Centre For Monitoring Indian Economy, (CMIE) shows a spike in the last week of March and the first week of April.

The unemployment rate during the last week of March rose to 23.8 percent and stayed around those levels in the first week of April also. To be sure, the survey was conducted under lockdown conditions and hence the sample size was materially smaller, CMIE said.

Electricity Consumption

With factories closed and power demand coming mostly from households, peak demand has plunged.

The average demand during peak evening hours, i.e. 7 pm, contracted by 26.6 percent for the April 1-10 period as compared to the same period last year, according to daily reports published by the Power System Operation Corporation Limited. Likewise, the maximum demand during the day has seen a drop of 24.5 percent on an average.

The impact of lockdown is expected to sharply curtail the demand for electricity in the immediate term, said Aditi Nayar, principal economist at ICRA.

Consumption of Petroleum Products

With fewer vehicles plying on roads, consumption of petrol fell by 16.4 percent in March 2020 over a year ago, according to data from the Petroleum Planning and Analysis Cell. Diesel, consumed in factories and for plying commercial vehicles, also saw a sharper hit as consumption fell by 24.2 percent year-on-year in March 2020.

Analysts believe that fuel demand may remain weak even after the lockdown is lifted as citizens may avoid travel for some time. According to estimates by CARE Ratings, consumption of crude oil may fall by 2.3 percent in FY21.

PMI Barely In Expansion Zone

The two Purchasing Managers’ Indices complied by IHS Markit India showed slightly diverging trends.

The Services Business Activity Index fell to 49.3 in March, down from February’s 85-month high of 57.5. The Manufacturing Activity Index saw a more modest fall to 51.8 in March, from 54.5 in February. This is because non-government services were the first to be hit even before a complete lockdown was announced.

The Composite PMI stood at 50.6 in March compared to 57.6 in February 2020. A level above 50 denotes expansion, while a level below it suggests contraction.

Cargo at Major Ports

Cargo handled by Indian ports fell the most in five months, dragged down by a drop in liquid cargo and container volumes.

Ports across the country handled 618.7 lakh tonnes of cargo in March, a decline of 5 percent over the year-ago period.

Agriculture Arrivals

Arrivals of agricultural commodities at key markets have fallen to a fraction of levels seen before a 21-day nationwide lockdown was imposed, data showed. This is because of supply chain disruptions despite food items being classified as essential commodities.

Data collated from Agmarknet, a government portal on agricultural marketing, showed a 15.76 percent decline in arrivals in the week of April 1-6 compared to the week of March 1-6. Overall, the total arrivals of major cereals, fruits and vegetables recorded across market centres fell to 3.09 lakh tonnes in the first week of April. This was 55.6 percent lower than arrivals seen a month ago.

The drop in arrivals of agricultural commodities signals a disrupted supply chain ahead of the crucial harvesting season.

Clearly, even after winning the war against coronavirus pandemic, India, like many other countries, will have to pull the socks to improve economy.

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