India's Economic Activity Continues To Surge. Can Supply Disruptions Play Spoilsport?

The surge in economic activity is palpable in the festive season, buoyed by the absence of a third wave and rising vaccinations.

The Nomura India Business Resumption Index, a weekly tracker of the pace of economic activity normalisation, rose to an all-time high of 108.8 for the week ended Oct. 17, from 105 in a week prior. Though led by mobility, the index saw a broad-based rise across most sub-components. Tailwinds include the ongoing festive season, a normal monsoon, back-loaded public spending, and the vaccination-led economic normalisation, Aurodeep Nandi, India economist at Nomura, said.

E-Way Bills: Record High

E-way bills rose for six straight months to a record high in October. According to data for the full month, e-way bills generated were at 7.4 crore compared with 6.8 crore in September.

Trade Deficit Marginally Narrows

Trade deficit stood at $19.9 billion in October compared with $22.6 billion in September, according to preliminary data by the Ministry of Commerce and Industry published on Monday.

The monthly deficit in September was at an all-time high.

• Exports rose to $35.47 billion in October, a 5% rise on a monthly basis and 42.3% annual increase.

• Imports fell 1.8% month-on-month to $55.37 billion. On an annual basis, it increased 62.5%.

Manufacturing PMI Expands For Fourth Straight Month

The IHS Markit India Manufacturing Purchasing Managers’ Index stood at 55.9 in October against 53.7 in September, according to data published on Monday. A reading above 50 indicates economic expansion.

Mobility Continues To Surge

Mobility across places of grocery, pharmacy, parks, transit stations, and residences turned positive in the second half of September and rose in October as well, according to data from Google's Covid-19 community mobility reports.

Google shares mobility trends daily with changes for each day compared with a baseline value for that day of the week. A seven-day moving average is used to smoothen out trends and account for day-to-day volatility.

On an aggregate, seven-day moving average mobility is now 8% above the pre-pandemic baseline as on Oct. 25, 2021.

• Mobility across the supermarkets and pharmacies category is 43% above the baseline.

• Mobility to workplaces has also climbed, and is now only 6% below the baseline.

• Mobility to places of retail and recreation is 5% below the baseline.

Payments: Mixed Signals

Digital payment transactions remained steady in October over the preceding month.

Real-time gross settlement transfers by volume rose to the highest in the current financial year, data up to Oct. 29, 2021 showed. But by value, such transfers were 10.6% lower than the previous month.

In the retail segment, transactions through national electronic funds transfer were 13.7% lower by volume and 18.8% by value as on Oct. 29, against the entire September. But payments by debit and credit cards in October exceeded the levels of the previous month.

Employment To Expand

Unemployment rate, as measured by CMIE, was at 7.8% for October from 6.9% in the preceding month.

However, there seem to be good enough reasons to believe that October will see an expansion in employment after September saw 8.5 million additional people with jobs, according to a note by Mahesh Vyas on the CMIE portal.

The September spurt was not a growth in agricultural employment, according to Vyas, implying that unlike in the recent past this was not merely disguised unemployment. Although the increase in employment in September was disproportionately higher in rural India, it was also palpable in urban regions where nearly 2 million jobs were added, Vyas said. This makes jobs growth more widespread and sustainable.

The increase in employment in construction and food industries seen in September is likely to be more sustainable than August gains, which were essentially in personal non-professional services (largely poor-quality jobs) and retail trade (which could not be sustained in September).

MGNREGA: Demand-Supply Mismatch

Demand for work under the government’s flagship employment-guarantee scheme continues to ease as jobs rebound. 2.1 crore households demanded work under the Mahatma Gandhi National Rural Employment Scheme in October, marking four months of decline . However, supply of work for households has fallen even more sharply. Employment was provided to 1.3 core households in October, the lowest since the nationwide lockdown in April last year. To be sure, these figures are likely be revised in the coming days.

Electricity Demand Continues To Ease

Average demand for electricity met during evening peak hours fell 3.5% over the previous month in October, according to data up to Oct. 28. That follows a month-on-month fall of 5% in September.

It's the aggregate supply that is at greater risk at the moment.

Supply-side bottlenecks are emerging just as growth is plateauing after a rapid recovery from the second wave, with the auto sector hit by semiconductor shortages, and the broader industrial sector now hostage to the ongoing energy crisis. As coal shortages continue, electricity tariffs will come under pressure, and the diversion of fossil fuel away from key industries like cement, steel, aluminium, fertilisers and oil refineries is likely to have ripple effects through the economy. These could lower industrial production over coming months.

Indranil Pan, chief economist at Yes Bank, said high prices of coal, commodities and logistics costs have created supply bottlenecks. Semiconductor shortages, earlier restricted to auto production, are now impacting other industries such as electronics, he said.

While April and June saw a spurt in economic activity, one can't expect that to aid momentum every month, he said.