Is the economy on track to exploit the festive season?

The sequential recovery which followed was interrupted once again by the second wave of the Covid-19 pandemic, which peaked on May 9 if a seven-day moving average of daily new cases is taken as an indicator.

Once the pitru paksha, a fortnight considered inauspicious for new transactions by a lot of Hindus, ends on October 6, India’s much-awaited festive season will begin in earnest. The Indian economy was facing a prolonged slowdown even before the pandemic hit. Then it faced its largest-ever contraction of 7.3% in 2020-21. The sequential recovery which followed was interrupted once again by the second wave of the Covid-19 pandemic, which peaked on May 9 if a seven-day moving average of daily new cases is taken as an indicator.

With new infections under control in most parts of the country, and the pace of vaccination having risen significantly, the festive season is being looked at with anticipation as one that will give a much-needed boost to the economy. (Bloomberg)

With new infections under control in most parts of the country, and the pace of vaccination having risen significantly, the festive season is being looked at with anticipation as one that will give a much-needed boost to the economy. To be sure, there are both demand (long-term scars of the pandemic) and supply (such as shortage of microchips) side factors that can generate headwinds for the economy. However, it is also worth asking whether mobility levels and the general state of the economy have recovered enough to place it optimally before the festive season. Here are four charts which explain the situation.

Pandemic situation has improved significantly in most parts of the country

The seven-day average of daily new cases in India was 30,887 on September 22. While cases were declining at a much faster rate earlier, there has been no significant increase in Covid-19 cases in the past few weeks. The national picture, to be sure, is a bit misleading, because more than 60% of the total daily new cases have been coming from just one state, Kerala. While the Kerala situation continues to be critical, it has improved compared to what it was at the start of September, immediately after Onam, the biggest festival in the state. Once Kerala’s numbers are taken out, the nationwide Covid-19 scenario looks more benign. If this trajectory does not reverse itself, it will definitely give a boost to economic activity, including consumer demand, during the festive season.

But workplace mobility gains seem to have stagnated

The period after the second wave saw a significant improvement in high-frequency indicators. The Nomura India Business Resumption Index (NIBRI), for example, crossed 100 for the first time after the pandemic in the week ending 15th August. While NIBRI has not fallen below 100 for six weeks now, it has not increased significantly either. Similarly, the Google workplace mobility index has also stagnated to around 85-90% of baseline level of February 2020. Even on these indicators, there are state-wise differences. Mobility levels are the highest in states such as Himachal Pradesh and Uttarakhand, and especially lower in the North-East states.

India fares lower on retail and recreation mobility

A comparison of mobility trends in India with the five major economies of the world (except China) shows that workplace mobility among Asian countries (both Japan and India) is better compared to the other high growth countries. However, mobility for retail and recreation activities which includes visits to restaurants, shopping centres, movie theatres among others is still lower in India and Japan compared to other countries where this has returned to almost pre-pandemic levels, or higher as in case of Germany and France.

Pace of vaccination still holds the key

As mobility levels and economy activity gain pace over the festive seasons – people are hoping it will – the risk of infections will also increase. The only way to prevent a potential spike in infections will be to increase the vaccination coverage as much as possible. As of September 22, India has fully vaccinated 22.8% of its adult population and another 65.5% has received at least one dose. The number of doses administered has been increasing every month after May, which is when India opened its vaccination programme for all adults. To be sure, there was a decrease in doses administered in May compared to April.

At the weekly average of pace of vaccinations on September 7 (the average week before and after September 17 has been affected by an unprecedented spike) it will take 137 days more after September 22 -- or until February 6, 2022 -- to fully vaccinate India’s adult population. Also, vaccination coverage varies significantly across states and rural-urban areas. India will do well to accelerate its pace of vaccination, with a special focus on the laggard regions, if it wants to pre-empt any potential disruption from the pandemic in the forthcoming festive season.