The recent macroeconomic data indicates that Indian economic
activity may soon reach to its pre Covid level. The latest reading on Nomura
India Business resumption Index is 93.4, just 6.6% below pre Covid induced
lockdown level. The media headlines and official commentary claims it to be a
“V” shaped recovery, implying that one year may have been lost, but Indian
economy is nearly back to “normal”. There is section of experts which is
terming it to be a “K” shaped recovery rather than a “V” shaped one; implying
that one part of the economy has raced much ahead while the other continues to
slide.
Some noteworthy data includes:
Fall in consumer and wholesale inflation,
highlighting easing of logistic constraints. The inflation is now within the
RBI tolerance band, and has prompted the governor to emphasize that surplus
liquidity would need to be sucked out of the system. The very steep yield curve
has started to flatten a bit.
IIP growth is now back
to February 2020 level. In December, e-way bill collections rose by 15.9% to
6.42 crore in December 2020, the highest since April 2018. The mobility to work
places ticked up in past 8 weeks, as shown by Google mobility index.
Though the exports have
faltered in past three months, may be due to fresh mobility restrictions in
major European and American economies, but imports have bounced back sharply.
The sharp bounce in non-oil and non-gold imports again indicates easing
logistic constraints and reviving industrial growth. The trade deficit
accordingly widened to 25 months high.
Elsewhere, China has
reported positive growth of 2.3% (yoy) for 2020 as a whole. UK, USA and many
other European countries have seen fresh surge in cases of infection and have
re-imposed some mobility restrictions, hampering the process of economic
recovery. In past couple of weeks the US job data has been disappointing.
These data certainly a matter of relief. However, in no way it
makes me comfortable. I know from my travels and interaction with people that
for a significantly large section of population, the normalization will take
years, if not decades, of “high” economic
growth. Besides, the amount of stimulus that has taken to bring the economy
back to “pre Covid” level may not be available to take it back to pre global
financial crisis (GFC) level; exatly we want to be.
For now, Indian economy is like a middle aged
person suffering from chronic asthma and diabetes, who has just returned home
after a successful open heart surgery.
