According to Japanese brokerage Nomura, due to lockdowns imposed in various states across India to mitigate the virulent nature of the pandemic, business activity has fallen by a fourth of the pre-COVID levels. The report by Nomura was published on Friday.
However, even though the economic activity is falling across states, according to the Nomura report, the growth of India will be delayed but will not be derailed. It stated that the falling activity levels will have a muted impact on the economy and thus it maintained its growth estimates for the year, saying the lockdowns present “downside risks”.
Reportedly, the Nomura India Business Resumption Index (NIBRI), on April 25, registered its steepest weekly fall in over a year. It registered a fall of total 8.5 percentage points to 75.9. The brokerage in its statement stated that the undesirable fall was of 24 percentage points which is below pre-pandemic normal.
Effect on economic activity
It is widely known, that as lockdowns have taken effect, mobility has experienced a significant hit and its signs of affecting the economy can be seen in economic facets such as power demand, GST e-way bills, railway freight. Reportedly, lockdowns have also severe impacted the retail business and thus has indirectly affected the construction and power sector in the economy.
Signs of lockdown’s crippling effect on the economy can be seen through its effect on unemployment, which rose by 10.72% in march and the PMI fell from 57 to 55.4 in the same quarter. Other report by Care Ratings states that Maharashtra’s lockdown can cost Indian economy Rs. 40,000 cores.
picture credits- financial express
Additionally, a report by CRISIL has grimly stated that power consumption and e-way GST bill collections are already going down with partial lockdown across the country, this clearly indicates that localized lockdowns are already hitting the economic activities.
Resilience in some sectors
But it is to be noted that the impact still appears small compared to the impact of the first wave in 2020. This is due to the fact that 2020 saw imposition of blanket lockdown in India but on the contrary, 2021 started with imposition of partial lockdowns in some states and thus it can be rightly stated that the effect of the first wave was highly exacerbated due to harsher lockdowns imposed in 2020.
The other indicators like labor force participation rate have remained resilient. Overall rural unemployment rate was marginally down to 8.4% for the week that ended on April 18 compared with 8.58% a week ago. Thus, rural employment and participation in the economy has shown resilience. But with more states extending restrictions, sequential momentum is likely to remain weak over the next month, hurting GDP growth in April-June period.
Maintaining its 11.5% growth forecast, the agency stated that “There are reasons to expect a muted economic impact. The experience from other countries suggests a lower correlation between falling mobility and growth. Parts of the economy like manufacturing, agriculture, or work-from-home and online based services should be resilient,”.
The brokerage additionally suggested that robust vaccination is the solution to India’s aggravated pandemic problem. It stated that as the pace of vaccination picks up, which it expects from June, there should be another return of pent-up demand, in addition to other tailwinds like strong global growth, lagged impact of easy financial conditions, and front-loaded fiscal spending.
It further stated that, “The ongoing second wave should remain a short-term negative economic shock which is likely to be localized to the June quarter and the medium-term growth outlook remains stable”.