Economic recovery hits July plateau, shows data

NEWDELHI: The rate-setting Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will begin a two-day meeting on Tuesday amid mounting evidence that India’s nascent economic recovery is at risk of plateauing out as new coronavirus disease (Covid-19) infections pile up.

Most high-frequency indicators for July suggest that not only was economic activity in July slower than the year-ago level, but that even a sequential recovery seen in May and June may have been interrupted.

Experts believe that this may be a result of the exhaustion of pent-up demand created by lockdown restrictions in April and May. This has also raised concern that the economy could take longer than expected to come back to pre-pandemic levels. According to a Reuters poll of economists, the Indian economy may be in a contraction mode till the December quarter.

The IHS Markit India Purchasing Managers’ Index (PMI) for manufacturing went down from 47.2 in June to 46 in July. A PMI value below 50 signals a contraction in economic activity. Services PMI numbers, which had taken a bigger hit due to the lockdown, for the month of July will be released on Tuesday.

Goods and Services Tax (GST) collection in July fell to ₹87,422 crore after rising to ₹90,917 crore in June. On a year-on-year basis, the July collections were 14.3% lower. State-owned refiners’ diesel sales, which, according to a Reuters report, account for twofifths of overall sales in India, fell

by 13% to 4.85 million tonnes in July from the previous month, and by about 21% from a year earlier.

Some high-frequency indicators suggest a plateauing rather than a worsening of economic activity. The weekly Nomura India Business Resumption Index (NIBRI) was flat between the week ended July 26 (70.3) and August 2 (70.4). “Overall, the NIBRI has remained stuck at 30 percentage points below pre-pandemic levels for the month of July, although it has improved by 2.7 percentage points from June levels”, Nomura’s chief India

economist Sonal Varma said in a research note.

To be sure, domestic car sales, often used as a key indicator of demand and consumer confidence, showed a spike in July. Maruti Suzuki, India’s largest carmaker, reported an 88% increase in sales over June and a 1.3% rise over July 2019. These numbers are of Maruti’s sales to dealers and do not reflect sales to customers.

Overall, because of the decline in exports, the company’s sales declined 1.1% over last July. These numbers failed to generate enthusiasm.