Key indicators point to slowing business activity
This loss of momentum in economic recovery for the first time in seven months from the turbulence caused by the pandemic could worry policymakers as they prepare for the federal budget.
The tally of newly incorporated companies, as well as electronic permits raised for transporting goods, declined on a sequential basis in November for the first time since April.
This loss of momentum in economic recovery for the first time in seven months from the turbulence caused by the pandemic could worry policymakers as they prepare for the federal budget. Data from the corporate affairs ministry showed the setting up of new firms, which indicates investment intent, fell 19.5% in November to 13,453 companies from the preceding month. The number of companies incorporated each month saw a sustained rise since April, in line with the easing of lockdown restrictions.
The number of electronic permits raised for transportation of goods within and across states declined 10% to 57 million in November from the previous month. This trend aligns with the sentiment showed by IHS Markit purchasing managers’ indices for manufacturing and services, indicating that November activity was a notch below October.
Meanwhile, data issued by RBI showed that the number of real-time online payments through UPI fell 5.3% to 1.51 billion transactions between December 1 and 21, compared to the same period in November.
UPI transactions touched a record high of 2.21 billion in November, with pent-up demand during the festive season being one of the factors. According to experts, the sequential decline in e-payments so far in December may be temporary and will rebound as schools, colleges and workplaces reopen.
“The main reason for tepid growth in online transactions is due to a post-festive season lull. The festive season and e-commerce sales drove online transactions in October and November. People are now yet again spending cautiously due to the uncertainty associated with Covid. However, demand will pick up again if schools, colleges and offices reopen,” said Mandar Agashe, founder, Sarvatra Technologies, an end-to-end technology solutions provider for next-generation banking.
Madan Sabnavis, chief economist at Care Ratings Ltd, said if one considers high-frequency indicators of production, consumption and investment, economic recovery continued in November, although it is still fragile.
In an in-house ‘economic comeback indicator’ that ranges between -2 and 10, Care Ratings has assigned a score of 2.62 for November. This indicator tracks data on power generation, e-way bills, non-oil and non-gold imports, GST, petrol consumption, passenger vehicles, two- and three-wheelers, corporate bond issuance and bank credit since June this year.
Going by the 7.5% contraction forecast by RBI for the fiscal, the economy is expected to be of ₹188.7 lakh crore at the end of FY21. Given that even a strong rebound in the next fiscal will be on this lower base, the fiscal deficit in FY22 is unlikely to narrow significantly as spending requirements are expected to remain high even as non-tax revenue sources such as divestment proceeds remain weak. “This could tie the government’s hands in taking further expenditure-boosting measures or in offering tax breaks in the FY22 budget,” said Sabnavis.