Key Highlights:
- Some of the high-frequency indicators such as auto sales, air traffic, toll collection and rail freight loadings have revived hopes of recovery adding to the festive season cheers.
- With monsoon rainfall remaining above normal this year, Kharif harvest is expected to be bountiful further supporting the rural consumption.
- Flight occupancy during the last three months after the lockdown has also shown improvement prompting airlines to urge the government to allow them to operate more flights.
- Some economists are, however, skeptical about a V-shaped recovery and continued growth momentum given that many sectors such as real estate and tourism are still not out of woods. Also, capacity utilisation at factories remains far from satisfactory.
Even as macro numbers point to continued distress in the economy, some of the high-frequency indicators such as auto sales, air traffic, toll collection and rail freight loadings have revived hopes of recovery adding to the festive season cheers.
With monsoon rainfall remaining above normal this year, Kharif harvest is expected to be bountiful further supporting the rural consumption.
"It's a combination of pent up demand, anticipation of festive demand, and natural improvement in demand. September has been a better month than July and August. If the trend extends beyond the festive season, we will have a better handle on demand normalisation," said Suvodeep Rakshit, Vice President & Senior Economist at Kotak Institutional Equities.
While year-on-year number for various sectors continue to be muted, the month-on-month sales figures for passenger vehicles and two-wheelers, air passenger traffic and rail freight among others have shown an upward trend. Domestic sales of passenger vehicles in August was 2,15,916 units (excluding BMW, Mercedes, Tata Motors and Volvo Auto) as compared to 1,82,779 in the previous month. In June, sales count of passenger vehicles was 1,05,617 units, as per data compiled by Society of Indian Automobile Manufacturers (SIAM).
Two-wheeler sales also reported sharp recovery during this period. The total two-wheeler sales in August was 15,59,665 as compared to 12,81,354 in July.
Weeks before the festive season begins, many automakers have reported jump in sales for the month of September. Car market leader Maruti Suzuki led the growth reporting 34% year-on-year jump to 147,912 units in September. Factory-gate shipments for Hyundai Motor India was also in high double-digit of 23.6% at 50,313 units in September. Analysts have attributed the rise in sales to pent-up demand and low base effect.
Likewise, passenger air traffic has also been climbing though it is far from the pre-Covid level. Domestic passenger traffic in August was 28.32 lakh compared to 21.07 lakh in the previous month. In June, all airlines together carried 19.84 lakh passengers. Flight occupancy during the last three months after the lockdown has also shown improvement prompting airlines to urge the government to allow them to operate more flights.
On the back of modal shift towards railways and demand uptick, Indian Railways has seen a gradual recovery in freight loading. In August, the Railways loading was 94.33 million tonnes which were 3.31 million tonnes higher compared to 91.02 million tonnes in the same month last year. In September 2020, the total freight loading was 102.12 million tonnes, up 15.3% from 88.53 million tonnes in the corresponding month of 2019.
"These are signs of recovery but we have to wait and see if the momentum is maintained in the next few months. There are other indicators which show that the momentum was lost. I think it is too early to say there is a generalised recovery," R Nagaraj, eminent economist and professor at Indira Gandhi Institute of Development Research (IGIDR) noted.
The doubts around a V-shaped recovery could hold true given that many sectors are still not out of woods and production capacity utilisation remains far from satisfactory. In the latest survey by industry body CII, 67% of 120 CEOs reported capacity utilisation of more than 50% as of now. Similarly, 27% of the companies surveyed reported 75 to 100% capacity utilisation now and about 44% of the companies expect that the capacity utilisation to be in the range of 75 to 100% by end of the second half of 2020-21.
"It's definitely showing recovery with more and more activities are being permitted. This festive season will be a big boost if public spending goes up," said Animesh Saxena, President of Federation of Indian Micro and Small & Medium Enterprises (FISME).
Showing a broader picture of the economy, the output of India's eight core sectors of infrastructure recorded a sixth straight monthly decline of 8.5% in August.