States Of The Economy: Local Economic Activity Swings To Virus Spread

The top five states by GDP still account for over two-thirds of all Covid-19 cases in the country. These are Maharashtra, Karnataka, Andhra Pradesh, Tamil Nadu and Uttar Pradesh. Together, these states contribute about 40% to India’s GDP.

In four of these five states, high frequency indicators such as electricity demand and mobility remained well below the national average. Uttar Pradesh has been an outlier with indicators improving more quickly than the national trend.

Electricity Demand

The peak demand for electricity during the day contracted by 3.6% year-on-year on an average in July across the country.

The top four states with the highest active cases—Maharashtra, Karnataka, Andhra Pradesh and Tamil Nadu—are seeing a steeper contraction than the national average.

• In Maharashtra, the maximum demand during the day, contracted by 7.3% in July on an annual basis. However, the state began to show signs of a pick-up, registering positive growth rates in peak electricity consumption in the last five days of July.
• In Gujarat, maximum demand during the day contracted by 10.6% year-on-year on an average in July, but grew by 2.12% in the fourth week of the month.
• Delhi, which now ranks eleventh among all states and union territories in terms of active cases, was also lagging with maximum demand during the day contracting by 8.5% on an average in July on an annual basis.
• Uttar Pradesh—ranked fifth for most active cases—saw maximum demand for electricity during the day to grow by 13.8%, outstripping the national average.

States in India has been resorting to unplanned and unsystematic lockdowns that might be acting as a constraint on sustenance of economic activity, Soumya Kanti Ghosh, group chief economic adviser at the State Bank of India, wrote in a research report dated Aug. 3, 2020.

Devendra Pant, chief economist at India ratings, said indicators such as electricity consumption are linked to economic activity. As such, Maharashtra, Tamil Nadu and Karnataka, which are relatively more industrialised states, continue to see a steeper contraction, while states with a large proportion of agriculture in their GSVA may see less impact, he said.

Mobility Trends

Covid-19 community mobility reports by Google, which plateaued and declined amidst rising cases and localised lockdowns in late June and early July, showed a pick up towards the end of July.

Mobility to places of retail and recreation were 54% below the baseline between June 19- July 31, compared to a 59% gap for June 5-July 17. Visits to supermarkets and pharmacies reached pre-pandemic baseline levels between June 19 and July 31, compared to a drop of 7% between June 5 and July 17. Mobility to workplaces remained low.

The state-level data shows that mobility across Maharashtra, Karnataka and Andhra Pradesh remained significantly lower than the national aggregates, while mobility in Tamil Nadu was close to national aggregates. Uttar Pradesh remained an outlier here too, recording higher mobility.

The Mobility Index reconfirms our fear of economy losing much of the momentum in July with restricted and self imposed mobility across states, said Ghosh.

Unemployment

While electricity demand and mobility show a correlation with the spread of Covid-19, unemployment rates have varied across states. This may be because of the extent of agriculture activity in different states and also the different level of employment provided under the rural jobs guarantee programme.

Unemployment rates in Maharashtra, Karnataka and Gujarat are significantly lower than the national aggregate, data from CMIE showed. The unemployment in Delhi remained high at at 20.3%.

The national unemployment rate in July fell to 7.4% from 11% in June, the CMIE data showed.

Commenting on the divergence between other concurrent indicators and unemployment, Mahesh Vyas, managing director of Centre for Monitoring Indian Economy, said that electricity and mobility overlook the activity in the agriculture sector.

Urban-Rural Mix May Swing Activity Levels

Going ahead, while controlling the spread of the virus will be the biggest determinant, the urban-rural of infections will also be important, said economists.

So far, rural India saw fewer coronavirus cases and strong agricultural prospects, said Ghosh. This may be changing. Among the top 50 worst affected districts in July, 26 are rural, according to analysis by Ghosh. Rural areas in Andhra Pradesh are the worst hit, while Bihar, Karnataka Odisha and Uttar Pradesh are showing marginal spread and hence must be contained immediately, said Ghosh. Tamil Nadu comes next with higher number of districts getting affected, though majority are urban districts, he added.