India has been under lock down due to the COVID -19 pandemic since March, 25th, 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. From May there has been gradual relaxations.
The Ministry of Statistics and Programme Implementation (MOSPI) , Government of India announced the IIP growth numbers and the Core sector growth figures on July , 10th and June, 30th respectively. Reserve Bank of India (RBI) has announced the sectoral credit growth numbers for May, 20 on June, 30th. Centre for Monitoring Indian Economy (CMIE) is publishing the unemployment numbers in regular intervals. Let us examine how the Indian economy has been impacted by this lock down.
IIP and Core Sector Growth
The IIP numbers which saw a decline of 55% in the month of April, saw a decline of 34% in the month of May, The core sector growth stood at -23.4% in the month of May as against -37% in the month of April. So in May, both IIP and Core sector growth showed some improvement as against April with the lock down being relaxed over time. However as compared to May, last year, both the IIP and core sector growth has been significantly lower. So while the economy has seen more activity in May compared to April, 2020, it is still far away from normal and still sees a significant de growth in the month of May also. It needs to be noted here that IIP has a very high correlation with GDP growth. So a negative IIP growth indicates that the first quarter GDP growth of FY, 2020-21 will most likely be negative.
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 and May, 2020, where a number of responding units have reported NIL production. Consequently, it is not appropriate to compare the IIP of April and May 2020 with earlier months. Moreover the estimated of April and May 2020 are quick estimates and may be subject to change in subsequent months.
The growth of all the sectors showed some improvement with respect to April, 2020 but continued to show a decline as compared to last year same month. Manufacturing sector, which is one of the most people intensive sectors continued to have the severest fall in growth among all the sectors. 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. Apart from the fertilizers sector, all other sector continued to show negative growth in May. The Covid -19 pandemic has very less impact on rural India and hence agricultural activity continued to function since April, 21st. Given this there has been a need of fertilizer leading to higher production and hence positive growth in that sector. All other sector did not witness such stream of demand and hence continued to show a decline in growth.
In order to combat the impact on economy due the pandemic induced lock down, the Government of India and the Reserve Bank of India announced an economic package. 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. Let us examine what has been the scenario in terms of credit growth.
The sectoral credit growth rate showed either a marginal decline or remained same in the month of May, 2020 as compared to the growth rate of April, 2020. The decline has been severe for personal loan segment. The personal loan growth is a reflection of demand in the economy and a decline in this reflects lack of demand in the economy. However within the retail loan sector, there has been a surge in auto loan. There has been a considerable decline in all other type of retail loans.
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. Only the large industrial segment witnessed a positive growth.
The decline in credit growth for small and micro industry segment has been more severe in May as compared to April. The medium and large industries have a higher growth in May as compared to April. So the small and micro industry sector which is one of the most people intensive sectors does not show a credit uptake at least till May. During mid of May, a host of credit schemes targeting this sector has been announced by the government. It remains to be seen how this will impact in the month of June.
CAR and TWO WHEELER SALES
Month of June has seen a significant growth in both car and two wheeler sales as compared to the previous month. This is a reflection of the fact that there has been significant surge in economic activity after unlock 1 starting from June, 1st. However the sales numbers of both cars and two wheeler has been significantly lower when compared to the same month previous year. So while there is signs of recovery in the month of June as compared to the previous two months, it is still much lesser than the pre-corona level. It needs to be noted here that both the car sales and two wheeler sales declined in previous financial year as compared to the earlier years. This year it shows further decline.
The IIP figures and the credit growth numbers suggest slump in the manufacturing sector and small and micro enterprises. Both these sectors are people intensive sectors and can have severe impact on unemployment levels. However agriculture sector has been functioning. Moreover additional budget has been allocated to MGNREGA for ensuring more employment, Let us see what has been the impact of unemployment trends.
The unemployment rates had seen a record increase in the month of April and May. However with the unlock 1 starting from June, 1st, there has been a significant decline in unemployment rate in the month of June, 2020. However the unemployment rates of June still remain higher when compared with the unemployment rates for the same month in 2019.
It needs to be noted here that the unemployment levels in the pre-corona level has itself been in the higher side. The overall unemployment rate which stood at 2.3% in 2011-12 showed a record increase to 6.1% in 2017-18, highest in 45 years. This showed a marginal decline to 5.8% in 2018-19. So overall the unemployment rate which has been in a higher side sees a further growth given this pandemic.