Economy moving onto a faster lane, but conditions attached

Delhi and the national capital region (NCR) are going through one of their worst public health moments. The dreadful air quality and the sharp spike in COVID-19 infections are having a telling effect on people’s lungs.

Contrast this with seven months ago, when there was an unmistakable crispness in the air as people remained confined to their homes, factories remained shut and cars stayed off roads for weeks.

Yet, even those once-in-a-generation merry spring days in April-May, were fraught with deep anxieties. From the daily wage earner to the business baron—everyone was asking only one question: when shall we return to economically sunnier days?

Cut forward to November, the conditions are of a curious opposite. The air, particularly in the NCR region, is unbreathable. There is a nip in the air but the sun is hardly visible, masked behind layers and layers of toxic pollutants that hang heavy in the atmosphere.

Yet, the economy appears to have regained a significant part of its lost lung power. The instant signals can be seen in the nearest mall, cars on roads, neighbourhood mom-and-pop shops, restaurants, weekly haats, office complexes, and, of course, sales of intermediates such as cement and steel.

A few statistics stand out. In the month of October, goods and services tax (GST) collections crossed the Rs 1 lakh-crore mark for the first time in 2020-21, a clue that households are spending more than the previous months.

GST, by definition, is a destination-based tax, implying the tax is collected at the point of sale. GST collections, therefore, are a good enough proxy to gauge how fast goods are disappearing from shop shelves. Higher GST collections, other things remaining same, would imply that indeed people are buying more than before.

Another revealing piece of data is about cars, not just the sales, but also those seen on roads.

Passenger vehicle wholesale sales in India increased by 14.19 percent to 3,10,294 units in October this year against 2,71,737 units in the same month last year as dealers stocked up in anticipation of potential demand during Diwali when car buying peaks in India.

Sales increased by 26.5 percent in September and 14.1 percent in August, according to SIAM.

People are also getting onto roads now more than before, driving their vehicles to reach workplaces as operations in offices and factories inch back to pre-COVID-19 scale.

Restricted travel in public transport because of a sense of fear as well limited availability due to COVID-19 protocols could be one of the main reasons that could be pushing up car sales as also prompting greater use of personal vehicles.

Transport fuel sales at retail stations mirror this trend. India's diesel consumption in October rose 6.6 per cent from a year earlier, the first such increase since COVID-19 restrictions were imposed in late March, signalling a pick-up in industrial activity as also greater movement to trucks on highways to ferry goods across the country.

Petrol sales in October rose above pre-pandemic levels for the second month in a row. Petrol sales rose 4 percent from a year earlier and about 8.6 percent from September.

India’s Gross Domestic Product (GDP)—the total value of goods and services produced in the country—fell 23.9 percent in April-June 2020, the worst in India’s statistical history, a data set that no one was not expecting. The deliberation was only over the extent.

From manufacturing to mining, from construction to real estate, from hospitality to trade, the lockdown has spared none.

The big question in August, when the GDP data for the first quarter came out, was: how long will the impact last? Two-and-half months later, on the eve of Diwali, the big question has changed dramatically: Is the revival for real, or will the economy again collapse after the festive season buying peters out?

Will the Indian economy pass through multiple peaks and troughs spanning several quarters before reaching a steady growth state?

The jury is still out on these, but there are a few signs that the recovery may sustain, albeit at a slower pace. A jump back in cement sales, which has reached pre-COVID-19 levels, holds out promising portends that activity is returning at construction sites.

A V-shaped recovery, when the economy rockets back as quickly as it had fallen, is one that everyone is hoping for. The steady rise in demand and higher spending by households should eventually prompt companies to add capacity lines and hire more.

Two conditions need to fall in place for that to happen. One, India should not see a repeat of Europe where major cities were forced into lockdowns because of a sudden spike in infections. Two, the unorganised sector in cities and towns need to quickly gallop back to pre-COVID-19 levels of activity that is strong enough to absorb job-seeking labourers who are slowly returning to cities and towns.

Until then, the signs are promising, but a switch onto a faster lane may still be at least two quarters away.

(Gaurav Choudhury is Consulting Editor, Network 18. Views are personal.)