Despite uptick, economy's full recovery set to be a long slog

Several high frequency economic indicators are showing signs of life, but we are still months away from recovery getting truely going. The latest data dispatches indicate that the economy is moving upwards, though economists have reason to believe that some of the uptick is due to pent-up demand from previous months.

While some project recovery to begin as early as Q3, others are avoiding reading too much into the anticipated festive-season spending.

In September, PMI (manufacturing) came in at 56.8%, GST collections were up 4%, e-way bills touched a 6-month high, railway freight was up 15% and power demand up by nearly 5%.

However, the services sector continues to be in trouble and could take longer to recover, while bank non-food credit is growing at a snail’s pace. CMIE data shows that new project investments fell in the September quarter, with both the public and private sector announcing fewer projects.

“Within the details, measures of output, new orders and raw material purchases saw the biggest gains, while export orders flipped back to expansion. However, these improvements are not yet driving up employment, with this index stagnant below 50 for the 6th straight month. Stocks of finished goods also fell to a 3-month low,” Barclays noted.

Moreover, for any rise or decline in economic indicators to become a trend, one should weigh at least six months data to know its full weight.

Any meaningful recovery will begin only when economic activity reaches pre-Covid levels, but there are different takes on it.

While the Ministry of Finance concluded last month that the worst was over and that the Indian economy was on the path of a V-shaped recovery, RBI Governor Shaktikanta Das was on the other side of the spectrum, asserting that even though indicators including agricultural activity, PMI and certain private estimates on unemployment point to signs of stabilistion, recovery was still not entrenched.

“By all indications, the recovery is likely to be gradual as efforts towards re-opening of the economy are confronted with rising infections,” he noted. The ministry, on other hand, cited strengthening rural demand and sectors like construction and manufacturing recording a revival. “The worst seems to be behind us as high-frequency indicators show an improvement June onwards,” it said.

All not Rosy

• The services sector remains in trouble and recovery may take longer
• CMIE data shows new project investments fell in the September quarter