E-Paper
How to read the June quarter GDP numbers
RBI’s Monetary Policy Committee (MPC), according to its latest resolution of August 6, expects June quarter GDP to grow at 21.4%.
The National Statistical Office will release the GDP numbers for the quarter ending June on August 31. The June quarter saw a large economic disruption on account of the second wave of Covid-19 infections. The wave, which peaked on May 9 in terms of seven-day average of daily new cases, was far more severe than the first wave in terms of infections and deaths. While mobility restrictions were not as crippling as the 68-day nationwide lockdown which was imposed on March 25, 2020, there were some and they did generate significant headwinds for economic activity.
RBI’s Monetary Policy Committee (MPC), according to its latest resolution of August 6, expects June quarter GDP to grow at 21.4%. Interestingly, this is an improvement over the 18.5% forecast made in the June meeting of MPC. Here are three charts which tell us what to expect and what to make of the GDP numbers to be released on Tuesday.
RBI’s projection suggests output will not come back to pre-pandemic levels
Like most economic statistics after the lockdown, the GDP numbers will also have a large base effect. This is because of the massive economic disruption which the 68-day long lockdown inflicted on the economy last year. In normal times, even a double-digit GDP growth rate would have meant that the economy was experiencing a boom. However, when read with the massive contraction in last year’s numbers, even a 21.4% GDP growth – this is what MPC has projected – will mean that economy has not regained pre-pandemic levels. India’s GDP suffered a contraction of 24.4% in the quarter ending June 2020.
India’s growth challenge in the post-pandemic phase has been to take economic activity levels back to pre-pandemic levels and then try and get it on to a healthy growth path. The economy was losing growth momentum even before the pandemic broke. MPC’s latest projection is intriguing, because while it has upwardly revised June quarter GDP projections, the numbers for the remaining three quarters have been brought down compared to the June projection.
High-frequency indicators suggest a staggered demand side damage because of the second wave
While GDP numbers come with a significant lag and are likely to be revised further during the course of the year, many high frequency indicators can tell us about the state of economic activity in the first quarter of the current fiscal year.
The Nomura India Business Resumption Index (NIBRI) has emerged as among the most popular high-frequency indicators of economic activity in the post-pandemic period. NIBRI comprises Google mobility indices, driving mobility data from Apple, and details of power demand and the labour force participation rate. The NIBRI series considers 23 Feb 2020 as the base and subsequent data entries have been indexed to it.
NIBRI started losing momentum in the March quarter itself and fell sharply as the second wave of Covid-19 cases gained momentum. NIBRI’s lowest value in the June quarter was 60.3 in the week ending May 23. It recovered to 86.3 by the week ending June 27. NIBRI’s all-time low was in the week ending April 26, 2020, when it fell 44. It recovered to 70.5 by the week ending June 28, 2020.
The fact that the second wave led to a smaller fall in NIBRI compared to the first wave is good reason to believe that economic activity did not suffer as much. However, when seen with the fact that RBI’s MPC has made a downward revision in its growth forecasts for the remaining three quarters of the year, even though NIBRI has shown a V-shaped recovery and has already crossed 100, suggests that the second wave’s economic impact might manifest more on the demand side rather than supply side – and perhaps with a lag.
Services might have suffered more than manufacturing activity, and this can lead to broad-based economic pain
The Purchasing Managers’ Index (PMI) from IHS-Markit suggests that the second wave might have inflicted a bigger shock to service sector activity than industry. PMI manufacturing, which crossed the psychological threshold of 50 – a PMI value above 50 indicates expansion in economic activity compared to the previous month and therefore indicates sequential recovery – in August 2020 itself, and stayed above the 50-mark in the months of April and May, though the second wave. In fact, PMI manufacturing increased marginally between April and May. It only fell to 48.1 in the month of June. Services PMI, on the other hand, lost momentum in April itself and was below 50 in the months of May and June. To be sure, the Index of Industrial Production (IIP) suggests that industrial activity in the June quarter also lost momentum. The IIP index in the June quarter was 121.8 compared to 137.4 in the March quarter. The corresponding values for the quarters ending June 2020 and June 2019 were 84 and 130.4. A bigger adverse impact on services because of the second wave of Covid-19 infections could have meant that a bigger proportion of the workforce might have experienced a squeeze in incomes, as services, especially in the informal sector are a bigger employer in India than manufacturing. It will be interesting to see whether the GDP numbers are in keeping with these trends.
