North Indian States Lead Revival In Economic Activity
Cyclists and motorists travel along a near a gate to the Imambara Husainabad in Lucknow, Uttar Pradesh, India, on Monday, Dec. 30, 2019. Photographer: Prashanth Vishwanathan/Bloomberg

North Indian States Lead Revival In Economic Activity

As India continues to unlock, economic activity has picked up the pace, with several high-frequency indicators now back at levels seen before the Covid-19 crisis hit.

An index of coincident indicators, published by the RBI in its October Monetary Policy Report, shows that activity levels across India are close to what was seen in mid-March but remain below what was seen in February.

However, the index, when deconstructed, shows wide divergence across regions. The index is constructed as a weighted average of state indices by using the share of states in overall GVA as weightage.

For the most part, the index was found to be inversely proportional to the stringency of the lockdown India imposed.

The northern region registered positive momentum from mid-June but lost steam in the second half of August before gaining traction again in September. On the other hand, the western and southern regions have experienced a fall in the momentum in the September after registering some signs of recovery.
Monetary Policy Report, October 2020
North Indian States Lead Revival In Economic Activity

In some states in the North, containment efforts have been more successful, said Abheek Barua, chief India economist at HDFC Bank.

Some of these states have been able to control Covid much earlier than states in the West and South, allowing for a quicker pick-up in activity, said Barua. Also, some of the northern states are better than the rest of the country in terms of vulnerability going by metrics such as population density, medical facilities etc, said Barua.

Even within the northern region, some states stand out on account of a pick-up in activity.

Uttar Pradesh is among them.

The state has seen a noticeably sharp rise in its coincident index, shows the RBI data. The daily maximum demand for electricity in Uttar Pradesh rose by 21.5% on an average annually in September 2020. In Rajasthan, daily maximum demand rose by 4.7% on average, while Delhi continued to see a contraction in demand over a year ago.

The policy-driven improvement in the power situation of a state where long power cuts are a common phenomenon is worth noting, said Ankita Pathak, an economist at Edelweiss. A regular supply of power can show significant spikes in consumption, she said, commenting on the spike in electricity consumption in Uttar Pradesh.

The state-level data by Google shows that mobility in Uttar Pradesh also remained significantly above than the national aggregate.

Mobility to places of retail and recreation was 27% below the baseline in the state between August 25- October 6, compared to a 36% gap for India. Visits to supermarkets and pharmacies exceeded pre-pandemic baseline levels by 12%, compared to a drop of 4% for India at large. Mobility to workplaces was 24% lower from the pre-pandemic levels in Uttar Pradesh, compared to a gap of 30% for India.

In terms of mobility, however, it is Bihar which is the closest to normalcy among all major states. This may be because Bihar goes to elections soon.

The uptick in mobility is a reflection of easing lockdown restrictions, which along with a higher share of rural activities has made the path to normalcy faster, Pathak said.

Also, with migrant labour returning, there is a shift in activity from urban metros to the states which supplied migrants, such as Uttar Pradesh. This, along with a higher recovery rate, is also aiding Uttar Pradesh in opening up faster than the other states, Pathak said.

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