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 for July on September, 10th and August, 31st respectively. Reserve Bank of India (RBI) has announced the sectoral credit growth numbers for June on August ,31st. 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
Both the IIP and the Core sector witnessed negative growth in the month of July. However the extent of negative growth has seen a continuous decline for the last four months. However as compared to July, last year, both the IIP and core sector growth has been significantly lower. So while the economy has seen more activity in July compared to previous three months, it is still far away from normal and still sees a significant negative growth in the month of July also.
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. Moreover the estimated of July 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 the previous three months but continued to show a decline as compared to last year same month. Manufacturing sector, which is one of the most people intensive sectors showed some improvement as compared to the previous three months. However this remains much lower than the growth numbers in the same month last year. 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. 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 June. It should we be noted that compared to the growth rate of April amd May, all sectors apart from cement and refinery saw an improvement in growth rate in June. 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 July, 2020 as compared to the growth rate of June, 2020 for almost all the sectors. Agriculture and Allied sector and personal loan sector witnessed a increase compared to the previous months However when compared to July, 19 then all sectors witnessed a severe decline in credit growth. The decline has been severe for personal loan segment. However this month shows a positive trend. 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.
As we see a decline in credit growth of industry sector from the previous three months, let us examine what is driving this. 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 credit growth for micro, small and medium sized industry segment continued to show a negative growth in July, like the previous three months. The decline in credit growth for small, micro and medium sized industry segment has been less severe in July as compared to the previous months. The large industries show a lower increase in the month of July as compared to the previous four months. So the small, micro and medium industry sector which is one of the most people intensive sectors does not show a credit uptake at least till July and the large industries are also showing a lower uptake. During mid of May, a host of credit schemes targeting this sector has been announced by the government. However, there is no significant impact of the measures at least till June. It remains to be seen how it impacts in the coming months.
Car and Two Wheeler Sales
The credit growth numbers showed that the vehicle loans growth has been more than the same month in the previous year and is the only type of retail loan which is seeing a increase in growth. This is reflected in the car sales and two wheeler sales numbers. Month of August 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. The sales numbers has been more than the numbers achieved in August, 19. So automobile sales shows signs of recovery. 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.
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. It further declined in July. However this showed some increase in August, compared to July. The unemployment rate is comparable to what was there one year back. The unemployment rate in urban India is more than that in rural India.
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.