As India’s GDP contracts sharply in Q1, other indicators show more pain ahead

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India’s economy contracted by a massive 23.9% in the June quarter, a nasty number largely expected by the market. But more than the headline print, what worried the markets were the gaps behind the calculation of it. Indeed, the Central Statistical Organisation (CSO) faced a big challenge in collating the data for gross domestic product (GDP) as the lockdown for the first two months of the quarter made it impossible to do so.

“…the usual data sources were substituted by alternatives like GST, interactions with professional bodies etc. and which were clearly limited,” said the release. In this backdrop, economists have made their own proprietary indices, which may be more reliable at gauging the economic impact of the pandemic.

One of the most popular indicator ever since the pandemic hit has been the Google Mobility index that measures visits to different locations such as retail shops, workplaces, parks and transport hubs.

Abheek Barua, chief economist at HDFC Bank said that these indicators serve as a good gauge of what to expect in the months ahead. “We and others too have taken the mobility index in our own indices of economic activity. These capture the improvement or lack of it in different segments fairly accurately,” he said.

Most indicators have shown that the initial improvement in June has tapered off in July. In short, the economic recovery is fragile. Electricity use and fuel consumption showed how recovery in industrial output could be long drawn. One of the unlikely indicators that could give recovery cues is the wholesale price index (WPI) inflation. In an interview with a television channel, Reserve Bank of India Governor Shaktikanta Das said that the central bank looks at multiple indicators one of them being WPI inflation. The recent prints of the headline number has shown that producers are far from getting back their pricing power. This indicates that demand is yet to revive.

Besides, the gross GST revenue collected in July was Rs87,422 crore, 14% lower from year ago. Another widely followed indicator of business activity is the trend in e-way bill generation, which also shows the pace of recovery seen in June and July hasn’t sustained in the latest data. E-Way bill generation for April, May, June and July hovered at 16%, 46%, 79% and 88% levels, respectively of pre-covid levels, but came back to 80%, the latest data for mid-August showed, according to data collated by ICICI Direct.

“The recovery remains uneven with a faster rise in supply versus demand, rural consumption versus urban and industrial sector versus services,” Nomura’s economists said in a note on 25 August.

Many businesses are now indicating pent-up demand slowly fizzling out, so it remains to be seen how data for the coming months turns out.

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