India has been under lock down due to the COVID -19 pandemic since March, 26th, 2020. The lock down has been stringent for the first months with the first set of relaxations announced from April 21st, 2020. This lock down is expected to have severe impact on the economy.
The Ministry of Statistics and Programme Implementation (MOSPI) announced the IIP growth numbers and the Core sector growth figures on June , 12th and May, 29th respectively. Reserve Bank of India (RBI) has announced the sectoral credit growth numbers for April, 20 on May, 29th. Let us examine how the Indian economy has been impacted by this stringent lock down.
IIP and Core Sector Growth
The IIP numbers saw a decline of 55.5% while the core sector growth saw a decline of 38.1%. Both these indicators had witnessed positive growth as of the same month last year. It needs to be noted here that in view of the preventive measures and announcement of nation-wide lockdown by the Government to contain spread of COVID-19 pandemic, majority of the industrial sector establishments were not operating from the end of March, 2020 onwards. This has had an impact on the items being produced by the establishments during the month of April, 2020, where a number of responding units have reported NIL production. Consequently, it is not appropriate to compare the IIP of April, 2020 with earlier months. Moreover the estimated of April, 2020 are quick estimates and may be subject to change in subsequent months.
It has been seen that manufacturing sector has suffered the severest decline in terms of IIP. It needs to be noted here that manufacturing sector contributed to almost 80% of the total IIP. Similar pattern is witnessed in terms of Core sector growth. Cement and Steel industry has witnessed the severest burnt in the stringent lock down month. Each of the eight core sectors has seen a negative growth.
Sectoral Credit Growth
All the sectors witnessed a decline in credit growth in April, 2020 as compared to the same month previous year. The decline in credit growth of industry has been very severe. It needs to be noted here is that a sizable section of the economic package announced by the government and the central bank is targeted to provide more liquidity and credit in the economy. The first set of such policies was announced by RBI in March 28th and then again around mid April. Government of India announced such measures in mid May. Many economists believe that with lack in demand in the economy, there might not be a higher credit off take even after those measures. It remains to be seen how the credit growth trend spans out in months to come.
A host of credit measures were taken focusing on the small and medium enterprises. It needs to be noted here that both the micro and medium industrial sector which actually is a source of employment for vast majority witnessed a decline in credit growth in the month of April. Only the large industrial segment witnessed a positive growth.
All the key economic indicators suggest that the lock down has a profound impact in the Indian economy at least in the month of April. It needs to be noted here that IIP growth, personal loan (retail) growth, Core sector growth and services sector credit growth has a strong correlation with GDP growth historically. The trends in April clearly indicates that the first quarter GDP growth for FY, 2020-21 is going to be severely impacted by this lock down.
Since April 21st there has been some relaxations given in the lock down. The number of relaxations increased in the month of May and June. It remains to be seen how this will impact the key economic indicators in subsequent months. The pandemic has severe impact in major economic centers like, Mumbai, Delhi, Ahmadabad and so on. A control on the spread of the disease in these economic centers is the need of the hour.