Covid Blues: Growth worries grip amid new wave of coronavirus

By: |
March 30, 2021 5:45 AM

Curfews, localised lockdowns hit mobility; business resumption plans affected too

rerThe reason why market forces cause the rupee to appreciate so much without actual productivity growth is that India is sui generis.

Even before a second Covid-19 wave threatened to play spoilsport, the demand in the economy was muted and Corporate India was struggling to retain the pricing power gained in a short period of fast-paced normalisation. Latest streams of high-frequency data signal GDP might contract at a rate sharper than 1.1% prognosticated by the National Statistical Office (NSO) in the March quarter. Lockdowns are back in a localised fashion and night curfews are being imposed in several urban areas, hitting mobility and raising the grim prospect of a further weakening of consumption demand.

Just before the second Covid wave hit the country, sections of Corporate India was going through a reset phase, which inflated raw material costs and core (non-oil, non-gold) imports. Corporate profitability is likely to be under greater pressure in Q4. Firms could defer their plans to increase capacity utilisation and roll out new investment/business decisions by another quarter, if not longer, due to the renewed uncertainties. Nomura India Business Resumption Index declined in recent weeks.

Underlying inflation is picking up — Retail inflation hit 5.03% in February from a 16-month low of 4.06% in the previous month, wholesale price inflation, too, spiked to a 27-month high of 4.17% in February. What could add to the inflation pressures is a rise in oil prices.

As per the index of industrial production, capital goods production shrank a steep 9.6% in January, reflecting that large companies with potential to invest and give the much-needed impetus to fixed asset creation in the economy, are yet to take the plunge. Equally disconcerting is 6.8% annual contraction in the production volume of even consumer non-durables in January; clearly the lower middle-class and the poor are wary of spending on even essentials.

Overall industrial output contracted in January by 1.6% against a 1.6% rise in December. The output of the eight key infrastructure industries, with a near 40% share in the index of industrial production, remains subdued, too. After a 0.6% rise in September, it slid at a faster pace of 0.9% in October and 2.6% in November before inching up marginally by 0.2% in December and 0.1% in January.

Growth in merchandise exports slowed to 0.7% on year in February from a 22-month peak of 6.2% in January. Core imports, which is an indicator of investment demand, grew 9.5% in December and 8.4% in January, indicating companies had indeed planned to reboot, but the growth fell to 6.5% in February.

Demand from the lower middle class, rural India and small towns turned weaker in recent months — two-wheeler sales, a close proxy of such demand, fell 8.8% on year in January and a steeper 16.1% in February, after 11.9% rise in December, the only month in the fiscal where the sales of these vehicles showed positive growth.

Do you know What is FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Bring petroleum products in ambit of GST soon: PHDCCI
2Deepak Das takes charge as Controller General of Accounts
3RBI likely to maintain status quo on interest rate