Real economy indicators started to weaken in April in response to local restrictions imposed to curb the spread of the Covid-19 virus. Restrictions were initially introduced in a few states but have been extended across larger parts of the country as the virus spread.
Monthly indicators available so far show weakness in the movement of goods and employment. Others data points like trade and the Purchasing Managers Index held up.
MNREGA Demand Rises
Demand for work under the government’s flagship employment guarantee scheme has remained high since the onset of the pandemic and rose further in April. It was at its highest since July 2020 last month.
Over four crore persons demanded work under the Mahatma Gandhi Rural Employment Act in April 2021, compared to 3.6 crore persons in the preceding month, the monthly data shows.
Unemployment Rate Inches Up
Unemployment rate, as measured by CMIE, rose to 8% in April 2021, compared to 6.5% in the previous month. Urban areas continued to record higher unemployment in comparison to rural areas. The urban unemployment rate of 9.8% for April 2021 was the highest since August 2020.
“In the month of April, compared to March, we have lost 75 lakh jobs. That is what has caused the jump in the unemployment rate,” Mahesh Vyas, managing director at CMIE, was quoted as saying by PTI on May 3.
E-way Bill Collections Weaken
E-way bill collections until April 25 are lower by nearly a third compared to March. While data for the full month isn’t yet available, average daily collections for April are running lower than in March.
Collections declined 6.9% on-week for week ending April 25 after a fall of 6.2% in the preceding week, according to a note by Crisil.
Truck Rental Prices Fall
Truck rentals fell by 18-27% for major routes during April 2021, according to data shared by the Indian Foundation of Transport Research and Training.
Diesel prices were steady in April but the slump in factory output due to production cuts and closures in may states, further complicated by the lower arrivals of fruits and vegetables, caused truck rental rates to drop, said SP Singh, senior fellow and coordinator at IFTRT.
Rail freight volumes were also down by 7% month-on-month, compared with 0.4% increase in March 2021, according to Sameer Narang, chief India economist at Bank of Baroda.
Electricity Demand Falls Modestly
Demand for electricity showed signs of weakness in April but remained volatile.
A seven-day moving average of demand for electricity to smoothen out daily volatility, showed signs of a decline through most of April but showed a modest bump up towards the end of the month.
Power consumption has fallen only modestly and is broadly holding up in line with seasonal trends, said Rahul Bajoria, chief India economist at Barclays.
Manufacturing PMI Holds Up
The seasonally adjusted IHS Markit India Manufacturing PMI was at 55.5 in April compared to 55.4 in March. It remained above the 50-mark, which indicates expansion.
Growth rates for new orders and output eased to eight-month lows amid the intensification of the Covid-19 crisis, even as export orders surged the fastest since October last year, said IHS Markit in its release.
Foreign Trade Resilient
Foreign trade showed signs of sequential weakness according to preliminary data released on May 2, 2021. However, economists attribute this to seasonality.
Merchandise exports fell to $30.21 billion in April compared to $34.4 billion in March. Imports fell to $45.45 billion last month compared to $48.4 billion in March.
The Big Picture
“Cumulatively for the month of April 2021, we estimate a sequential loss in economic activity to the tune of about 15-20%,” said QuantEco Research in a note on May 3 “The decline has been led by consumption-based lead indicators, with early signs of a slowdown being visible in railway passenger travel, restaurant related online searches and mobility indicators, accompanied by a rise in unemployment rate.”
Narang of Bank of Baroda said the signs of weakness in April is evident and far greater than can be explained by seasonality. “The end of the financial year in March may mean greater movement of goods, reflected in higher e-way bill collections and cost of truck rentals. But, the decline in both indicators is significant even after adjusting for seasonality.”
As India’s second Covid-19 wave continues, there is growing uncertainty around the number of cases and fatalities, said Bajoria. “Slowing vaccinations are also hurting India’s recovery prospects. We lower our FY21-22 GDP growth forecast by 100 basis points to 10% to reflect this uncertainty.”