India’s Economic Activity Continues To Surge, Could Supply Disruptions Be Playing Spoilsport?

The surge in economic activity is palpable in the festive season, buoyed by the absence of a third wave and rising vaccinations.

It has been reported that the Nomura India Business Resumption Index, a weekly tracker of the pace of economic activity normalisation, rose to an all-time high of 108.8 for the week ended Oct. 17, from 105 in a week prior. Though led by mobility, the index saw a broad-based rise across most sub-components. Tailwinds include the ongoing festive season, a normal monsoon, back-loaded public spending, and the vaccination-led economic normalisation, Aurodeep Nandi, India economist at Nomura, said.

Still, it’s the aggregate supply that is at greater risk at the moment.

Supply-side bottlenecks are emerging just as growth is plateauing after a rapid recovery from the second wave, with the auto sector hit by semiconductor shortages, and the broader industrial sector now hostage to the ongoing energy crisis.

As coal shortages continue, electricity tariffs will come under pressure, and the diversion of fossil fuel away from key industries like cement, steel, aluminium, fertilisers and oil refineries is likely to have ripple effects through the economy. These could lower industrial production over the coming months.

“The October-December quarter is all set to be the ‘battle royale’ between economic headwinds and tailwinds. An across-the-board cut in production could shave off as much as 1 percentage point from our GDP growth outlook for the quarter”.

Indranil Pan, chief economist at Yes bank said high prices of coal, commodities and logistics costs have created supply bottlenecks. Semiconductor shortages, earlier restricted to auto production, are now impacting other industries such as electronics, he said.

While April and June saw a spurt in economic activity, one can’t expect that to aid momentum every month, the company said.

Mobility Continues To Surge

Mobility across places of grocery, pharmacy, parks, transit stations, and residences turned positive in the second half of September and rose in October as well, according to data from Google’s Covid-19 community mobility reports.

Google shares mobility trends daily with changes for each day compared with a baseline value for that day of the week. A seven-day moving average is used to smoothen out trends and account for day-to-day volatility.

On an aggregate, seven-day moving average mobility is now 8% above the pre-pandemic baseline as on Oct. 25, 2021.

• Mobility across the supermarkets and pharmacies category is 43% above the baseline on.
• Mobility to workplaces has also climbed, and is now only 6% below the baseline.
• Mobility to places of retail and recreation is 5% below the baseline.

Electricity Demand Continues To Ease

Average demand for electricity met during evening peak hours fell 3.5% over the previous month in October, according to data up to Oct. 28. That follows a month-on-month fall of 5% in September.

Payments: Mixed Signals

Digital payment transactions maintained a steady growth momentum in October when compared to September 2021. In volume terms, Real Time Gross Settlement transfers rose to the highest in the current financial year, according to data up to October 29, 2021.

In value terms, RTGS transfers up to October 29, were 10.6% lower hen compared to the previous month.

In the retail segment, transactions through the National Electronic Funds Transfer up to October 29, were lower by 13.7% in volume terms and 18.8% lower in value terms, compared to data for the full month of September. However, payments by debit and credit cards in October have already exceeded the levels of the previous month.

E-Way Bills: Rising Momentum

E-way bills rose for five straight months up to September. According to data up to October 24, e-way bills generated were at 5.4 crores compared with 6.8 crores in September.

Unemployment Rate Remains Steady

The unemployment rate, as measured by CMIE, was range bound at 7.6% for the week ended Oct. 24 from 7.3% in the preceding seven days.

There seem to be good enough reasons to believe that October would also see an expansion in employment after September saw 8.5 million additional people with jobs, according to a note by Mahesh Vyas on the CMIE portal.

The September spurt was not growth in agricultural employment, according to Vyas, implying that unlike in the recent past this was not merely disguised unemployment. Although the increase in employment in September was disproportionately higher in rural India, it was also palpable in urban regions where nearly 2 million jobs were added, Vyas said. This makes jobs growth more widespread and sustainable.

The increase in employment in construction and food industries seen in September is likely to be more sustainable than August gains, which were essentially in personal non-professional services (largely poor-quality jobs) and retail trade (which could not be sustained in September).

MGNREGA: Concerns Remain

Demand for work under the government’s flagship employment-guarantee scheme continues to ease as jobs rebound. 2 crore households demanded work under the Mahatma Gandhi National Rural Employment Scheme in October, marking four months of decline.

However, the supply of work for households has fallen even more sharply. Employment was provided to 1.1 crore households in October, the lowest since the nationwide lockdown in April last year. To be sure, these figures are likely to be revised in the coming days. (bloombergquint)