With a phased reopening of activities, and various fiscal and monetary measures announced to reboot the economy, the dark clouds seem to be receding at a decent pace. The following indicators are showing positive signs and point towards recovery:
Power and fuel consumption: Power and fuel are critical inputs as they fulfill energy requirements of several industries and commercial establishments. Power demand is back to pre-lockdown levels with the September consumption showing a YoY growth of 5.6 per cent compared to a 10 per cent decline in June. The consumption of petroleum products showed signs of worry during July and August, with a YoY decline of 12 per cent and 16 per cent, respectively. However, in the first fortnight of September, petrol consumption grew by 2 per cent and diesel consumption de-grew just by 5.5 per cent YoY. This indicative positive trend reversal, if sustained, will have a multiplier effect on the economy.
Consumption: More than the consumption of essential commodities, non-essential consumption like automobile sales is a good indicator of growth. Sales (by volume) of 2-wheelers and tractors are already in the green territory compared to previous year, with a growth of 0.2 per cent and 65 per cent, respectively, in August. Sales of passenger vehicles is also almost back to earlier levels with August sales being only 2 per cent below the sales during the same month last year.
Core sectors: Core sectors like cement and steel which enable construction and real estate also witnessed a recovery. Consumption of flat steel and long steel were down YoY by only 5 per cent and 10 per cent, respectively, in August as against being down by 43 per cent and 15 per cent, respectively, in June. Registering 24.2 MT during August, cement production de-grew by 15 per cent YoY as against a de-growth of 21 per cent in May.
Severely impacted sector: Aviation, one of the worst-hit sectors due to the pandemic and lockdown, is also seeing a strong uptick. Ever since domestic flights resumed services on May 25, the number of weekly average daily fliers increased from about 38,000 in the week of May 29 to a whopping 1,35,000 in the week of Sep 25. While the number of domestic passengers is still lower than the pre-lockdown levels, a strong month-on-month uptick of 34 per cent in August gives us comfort that there is light at the end of tunnel for this sector as well.
Revenue collection: All the above recoveries should finally culminate into improved tax inflows for the government. While advance tax collections look grim, a major positive indicator has been the GST collections in September which stood at over INR 95,000 crore, witnessing a positive YoY growth after hovering in the negative territory for the previous 6 months.
Based on the above, there is a consensus amongst market commentators that the GDP for the current year would witness a de-growth of 9-10 per cent and the fiscal deficit would remain in the range of 8-9 per cent. Of course, the worry around inflation remains prominent.
Propelled by the pent-up demand and the various government and regulatory interventions like the “Atmanirbhar Bharat” package, structural reforms in certain sectors, policy rate cuts, reduced cash reserve ratio, targeted LTRO operations and extended moratorium to cash-strapped borrowers, the overcast shadows of the pandemic on economy are gradually fading. This has brought the much-needed hope and the market is witnessing a rebound.
A recovery fueled by just monetary and fiscal stimulus could be short lived and may have serious side-effects like inflation and deficit to deal with. To sustain the recovery, structural reforms in areas like agriculture, land, labour, power, taxation, tariff and trade, public sector, and financial sector; and their unwavering implementation will be key.
With the current encouraging economic recovery and positive signs of revival, I believe we are now on way to a clearer than expected Diwali this year. The return of brightness should not be too far!