So Far So Good: A Nervous Indian Economy Held Strong In December
Despite rising risks, economic activity showed a pick-up in December after signs of stagnation in November.
Economic activity picked up in December after showing signs of stagnation in November. But, as Indians gear up to celebrate the end of yet another tumultuous year, governments are gearing up for Omicron, leaving the economy caught in the middle.
Local governments in Mumbai and Delhi—among the worst hit in the second wave of the pandemic earlier this year, have announced fresh curbs on gatherings and night curfews. As the newest variant of the Covid-19 virus spreads, other cities and states may follow.
The current restrictions appear primarily targeted towards New Year festivities, but if these get extended into January, they may affect mobility and delay the recovery in contact-intensive services. However, a more pandemic resilient economy should cushion industry, broader services, and agriculture, supporting overall growth.Sonal Varma & Aurodeep Nandi, India Economists, Nomura
So far in December, high frequency indicators have held strong.
The Nomura India Business Resumption Index—which tracks ultra-high frequency data, rose to a record high of 119.8 for the week ending Dec. 26 compared to 116.4 in the prior week. The uptrend was led by a pick up in workplace mobility and demand for power, even as labour participation rate eased from the previous week.
QuantEco Research's Daily Activity and Recovery Tracker held at a record high of 117.7 for the week ended Dec. 26, 2021. Electricity generation and mobility recorded strong gains but were negated by shortfalls in traffic congestion and rail passenger traffic, a note by QuantEco Research dated Dec. 28, said.
Both trackers are pegged to a baseline value of 100.
E-Way Bills
Collections were at 5.8 crore according to data up to Dec. 26, 2021. December looks a tad better than the previous month with collections up to Dec. 26 up by 6.8% over collections up to Nov. 24, said Yuvika Singhal, economist at QuantEco Research.
In November, collections had dipped to a five-month low after having risen to a record high in October because of the festive season.
Electricity Demand
Demand for electricity met during evening peak hours rose by over 6% on average in December compared to a month ago, according to data collated by BloombergQuint from daily reports published by the Power System Operation Corp.
Over the past few months, coal shortages had weighed on electricity output. Even though supply-side bottlenecks persist, energy shortages are slowly improving, said Nomura.
Google Mobility
Mobility has continued to rise, led by visits for grocery and pharmacies.
Mobility across the supermarkets and pharmacies category is 48.6% above the pre-pandemic baseline on a seven-day moving average basis as of Dec. 24, 2021.
The seven-day moving average for mobility to workplaces has also climbed and is now 7.1% above the baseline.
The seven-day moving average for mobility to places of retail and recreation is 3.1% above the baseline on a seven-day moving average basis.
Payments
Daily averages were used to gauge the pace of payments up to Dec. 27, 2021.
Transactions through NEFT rose 4.5% up to Dec. 27 on an average on a month-on-month basis. This was compared to a decline of 3.4% in November from the previous month. On an annual basis, NEFT transactions declined by 2.3%
Payments by the RTGS rose 4.9% on an average in the same duration, after rising 12% last month. Annually, it rose by 4.5%.
Unified Payments Interface payments rose 3.5% up to Dec. 27 on an average over November. This was higher than a rise of 2.9% in November from October. There was a rise of 97.4% in UPI transactions from December last year.
So far, expectations for downside risks emanating from Omicron remain limited. "While we do remain cautious of a third wave in India, we believe its economic impact could potentially be short-lived and restrained," said the note by QuantEco Research. Given the uncertainty with respect to peaking of cases, GDP growth is continued to be estimated at 10% with with mild downside risks, it said.
Fresh restrictions being introduced by several states to curb the spread of Covid-19 may temporarily interrupt the economic recovery, especially in the contact-intensive sectors in Q4 FY22, said Aditi Nayar, chief economist at ICRA. "We're maintaining our forecast of a 9.0% GDP expansion in FY22, with a clear K-shaped divergence amongst the formal and informal parts of the economy, and the large gaining at the cost of the small."