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 contrac
tion 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
NEWDELHI: India’s manufacturing output in July contracted at a faster pace than in June, indicating that sporadic local lockdowns at a time of muted demand are hurting business activity at the national level, potentially delaying economic recovery.
Data released by analytics firm IHS Markit showed that Purchasing Managers’ Index (PMI) for manufacturing declined slightly in July to 46 from 47.2 in June. A figure above 50 indicates expansion, while a sub-50 print signals contraction.
Eliot Kerr, an economist at IHS Markit, said the survey results showed a “re-acceleration of declines” in the key indices of output and new orders, undermining the trend towards stabilisation seen over the past two months. “Anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown, suggesting that we won’t see a pick-up in activity until infection rates are quelled and restrictions can be further removed,” he added.
More than two months after imposing a harsh nationwide lockdown to curb Covid-19 infections, the central government lifted many restrictions on June 1, allowing most business activities to resume; however, new disease hotspots emerged in the southern and eastern Indian states soon after, prompting local authorities to put fresh mobility restrictions, disrupting business again.
During an interaction with journalists on Saturday, finance minister Nirmala Sitharaman said a complete picture about growth recovery is yet to emerge. “As long as the pandemic is active, we are talking about a situation full of uncertainty,” she added.
Indian Oil Corp. Ltd (IOC), the country’s largest fuel retailer, on Friday said its capacity utilisation, which had increased to around 93% in the first week of July, has fallen to 75% after many state governments imposed fresh curbs.
Madan Sabnavis, chief economist at Care Ratings, said the latest decline in PMI is indicative of the fact that supply chains have not yet been cemented and the localised lockdowns have affected production. “Also, notwithstanding the unlock process, households are still not free to move to provide a push to the consumption cycle. Further, the beginning of the monsoon has impacted both construction and other infrastructure work, thus pushing down the PMI,” he added.
The International Monetary Fund (IMF) last week said highfrequency indicators signal a plateauing of economic activity in India, as the positive impact from unlocking is not as strong as the negative impact of the lockdown. The funding agency urged the government to contain the spread of the Covid-19 pandemic on a priority to make the economic recovery sustainable.