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.

Recovery interrupted?

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.