IPD predicts the Q2 growth to be between -8% and -10%

Anindya Sengupta

The growth numbers for Q2, FY 20-21 is to be announced by the end of this month. This is the second quarter after the initiation of COVID-19. The economy gradually opened up during this quarter. It is of utmost interest to see how has been the initial recovery path of the economy after the severest drop in growth rate which was visible in the first quarter, FY 20-21. In this regard it is important to examine the trend in major economic indicators across months in this quarter.

IIP and Core Sector Growth

Source: Ministry of Statistics and Programme Implementation, Government of India

There has been a gradual improvement in both the index of industrial production (IIP) and the core sector growth over months. The IIP numbers have shown some nominal growth also in September, 2020 as compared to same month in the previous year. It however needs to be noted that there was a significant decline in IIP in September, 2019. So it could have been the low base factor. But this gradual improvement in growth rates is very important. A major contribution of IIP is coming from the manufacturing sector which is showing a -0.6% growth in the month of September, 2020. Manufacturing sector is one of the most people intensive sectors and hence its coming back to at least the last years level is a welcome trend. However it remains to be seen whether this is sustainable and also when it moves into the normal growth trajectory.

The Core sector growth also improved over months. With the relaxation of lock down and the economy beginning to work again, the production also started happening leading to the gradual improvement in growth of the core sector. These are encouraging trends.

Sectoral Credit Growth

With the gradual opening up of the economy as the production sectors are gradually showing lesser decline in growth rates, it is important to examine what will be the future pattern of growth. One important factor is the credit growth. More credit availed by the economy, more is the chance of that getting infused into the production sectors, leading to growth.

Source: Reserve Bank of India

The credit growth trends are not encouraging. Across all heads there has been a decline in credit growth over the months. The industrial sector witnessed almost no growth in September, 2020 which is alarming. This in a way indicates that while the production are increasing, the producers don’t expect it to grow further and hence lesser credit growth. The exception lies in the agricultural sector. This is witnessing a increased credit growth over months. It needs to be noted here that this is one sector which showed a positive growth in the stressed first quarter as well. The other sector which needs to be looked into is the services sector which is the most major contributor of GDP in India. There has been a decline in credit growth in this sector between August and July but in September we see some increase.

Personal credit growth in a way reflects the demand in the economy and growth in that has a multiplier effect on all sectors. This is showing an alarming trend with the gradual decline in personal credit growth over the months. The people are still rationalizing their spends and hence we see a gradual decline in the growth rate of persona credit growth. One possibility is that people were holding their expenses for the festive season, which started from October. So it will be very important to see how the personal credit growth rate trend has moved across the festive months. That will give a clear trend on what will the recovery strategy be for the Indian Economy.


Given the performance of key economic indicators, IPD pegs the second quarter ( July-September, 2020) to be between -10% to -8%. This will be significant improvement from the first quarter which showed a -23.9% growth. However with two consecutive quarters showing negative growth this is also reflective of recession as has been pointed out by RBI. Moreover there has been rise in prices of vegetables and other essential products. So a common Indian who is suffering from perhaps a income loss is actually spending more for essential commodities. However, with constant recovery in IIP and with the advent of festive season, where demands increase, one can expect that the situation will improve in the next two quarters.

Leading investment banks revise GDP estimates for current fiscal – project less contraction

~ by Trinanjan Chakraborty

Leading experts have revised their estimates for the growth trajectory of the Indian economy in the pandemic hit current fiscal with most projecting better performance than earlier predictions. The Indian economy suffered a sharp contraction of -23.9% in Q1 (Apr-Jun) of the current fiscal as the pandemic induced lockdown brought almost all economic activities to a standstill. The Q2 numbers have not been formally announced but a bulletin issued by RBI last week indicates the 2nd quarter to also de-grow.

The projections by leading investment banks for the Indian economy are as below:

Both Goldman Sachs and Moody’s have reduced the extent of contraction as forecasted in September. Only Barclay’s increased their prediction of contraction marginally. All of them though are in agreement that the economy is likely to be at pre-Covid levels by Q4 2021 and expect a rapid recovery in fiscal 2022. The downward revision of the projected contraction by Goldman & Moody’s is in reflection of the most recent round of stimulus announced by the Government and signs of economic recovery observed in the last couple of months. While the investment banks remain bullish on growth in 2021-22, the same is largely linked to mass availability of an effective vaccine ensuring no further road-blocks for the economic recovery.

Last month, the RBI had announced that it expects a 9.5% contraction in the economy in FY21.

Wholesale price-based inflation hits an eight month high in October, Retail inflation at 6 year peak

~ Trinanjan Chakraborty

The wholesale price (WPI) based inflation in the country rose to an eight-month high of 1.48% in October, data released by the Ministry of Industry & Commerce yesterday showed. The WPI inflation stood at 1.32% in Sep’20 and was 0.0% in Oct’19. The last time the WPI inflation was higher than in the preceding month was in February of this year when it had hit 2.26%. Last week, as per data released by Ministry of Statistics & Programme Implementation (MOSPI), the retail inflation in Oct’20 based on consumer price index (CPI) had touched 7.61% – highest since May 2014 – well beyond the RBI mandated range of 2-6%. The retail inflation stood at 7.27% in Sep’20.

Breaking down the WPI based inflation, the increase was led mainly by manufactured products category – going up from 1.61% in September to 2.12% in October. Inflation in primary articles slowed to 4.74% in Oct’20 (from 5.10% in previous month) while the same for Power & Fuel was at -10.95% (from -9.54% in previous month). The food inflation based on WPI index slowed to 5.78% from 6.92% in Sep’20. The WPI based inflation on food articles dropped to 6.37% from 8.17% in Oct. However, inflation in potatoes stood very high – at 107.70%, almost unchanged from September’s level (107.63%). WPI based inflation in vegetables softened considerably – from 36.54% to 25.23% – but still remained high. The WPI based inflation rate for manufactured food items went up marginally to 4.53% from 4.40% in Oct’20.

The consumer price index (CPI) based food inflation in October stood at 11.07%, up from September’s 10.68%. The retail (CPI based) inflation in Oct’20 stood at 22.51% for vegetables, 18.34% for pulses & products, 15.17% for oils & fats and 11.28% for spices.

Last week, in a bulletin on state of the economy, the RBI had flagged off the unrelenting pressure of inflation as a key concern that could destabilize the post-Covid economic recovery.

RBI news-bulletin predicts Q2 GDP to shrink by 8.6%, economy to enter recession mode

~ by Trinanjan Chakraborty

The Reserve Bank of India (RBI), in an article titled “State of the Economy” in its bulletin “Nowcast” has stated that the GDP is expected to shrink by 8.6% in the second quarter (Jul-Sep) of the current fiscal. “Nowcasting” is the prediction of the present or the very near future of the state of the economy. The prediction is based on quarterly results declared by 887 non-financial listed companies whose sales remained in contraction in Q2. The Indian economy had contracted by an unprecedented 23.9% in the first quarter, a large part of which saw most economic activities come to a total standstill due to the lockdown brought on by the Covid-19 pandemic.

If the prediction holds true, then the Indian economy will slip into a recessionary mode for the first time ever. An economy is said to be in recessionary mode when its posts negative growth for two quarters in succession. The relaxation of the lockdown started from June and at present, most economic activities are back to nearly pre-lockdown levels. The GST collection in October topped Rs 1 lakh crores for the first time since February, indicating a revival. The RBI also clarified that this bulletin does not represent the final official position which would be known on Nov 27th when the NSO releases the official numbers for the quarter.

The other concern flagged off by the RBI in its bulletin concerns rising inflation and second wave of covid-19 in Europe. The retail inflation in September stood at 7.34%, exceeding the upper limit of the RBI mandated range of 2-6%. It was also the highest since January of this year. October inflation numbers are expected later this week. Other major concern is the continued rampage of the pandemic in USA and a severe second wave in Europe which has seen most major European nations enforce a second lockdown. This could have a detrimental effect on external demand and thus hamper the export market for India. Exports declined 5.4% y-o-y in October and for H1 (Apr-Oct), the drop compared to same period last year was 19.05%. Although with imports also declining, the balance of trade position improved.

All considered, the RBI expects the economy to come out of contraction in the 3rd quarter (Oct-Dec) of the fiscal.

October fails to bring expected cheer for Automobile industry

~ by Trinanjan Chakraborty

The onset of the festive season in the country has not been able to provide enough impetus to the automotive sector, official figures released by Federation of Automobile Dealers’ Association (FADA), apex national body representing automobile dealers in India showed. Total vehicle registrations in the country during October’20 stood at 14,13, 549 – down 23.9% from the corresponding number in Oct’19 (18,59, 709). The change in individual segments is represented in the below chart:

Vehicle registrations: Change from Oct’19 to Oct’20 (source: FADA)

As can be observed, the toughest hit segment has been 3-wheelers with registrations becoming almost a third of what they were a year back. Sharp falls also observed in registrations of commercial vehicles and 2 wheelers. The only segment which bucks the trend is Tractors – with registrations increasing by a whopping 55.53% on back of what has been a very good harvest season in the country.

Compared to last month, there was a positive trend with vehicle registrations in October up by 5.11% from Sep’20. With Diwali falling in November this year, the festive push in October was mainly limited to the period of Navaratri. Also compared to other years, the festive season discounts were relatively muted this year thus failing to drive sales. FADA is hopeful that the Diwali period will bring further push for the sector but is cautious given the continued rise of Covid-19 cases in some parts of the country like Delhi and Kerala and warnings of a potential 3rd wave in the country from experts. Also renewed lockdowns in several European nations could hamper supply of spare parts thus impacting delivery to end clients.

30 Indian cities potentially facing serious water scarcity risk by 2050, WWF report reveals

~ by Trinanjan Chakraborty

A study on natural water resources linked to urban metropolises by the World Wildlife Fund (WWF) paints a bleak future scenario in the near future for the global urban population. The WWF’s “Risk Filter Analysis” has identified 100 cities globally which face an immediate water scarcity challenge. Egypt’s Alexandria tops the list with Mecca at no. 2, Riyadh at no. 5, Buenos Aires at no. 6 and Durban at no. 9. Out of these 100, 45 cities are from China while another 20 are from the Middle East. There are two Indian cities on this list: Jaipur at no. 45 and Indore at no. 75. These 100 cities face the most serious water scarcity risk as well as dangers of flooding due to dramatic increase in population (projected) in the near future.

The study also assigns a ‘risk score’ to the cities for 2030 and 2050. Any score above 3 qualifies as ‘high’ risk while anything above 4 is ‘severe’ risk. There are 16 Indian cities that face ‘severe’ risk of running out of water by 2030 with Ludhiana topping the list. This number is projected to increase to 26 by 2050.

Water scarcity Risk Indian cities : 2030
Water scarcity Risk Indian cities : 2050

The WWF Water Risk Filter is “a practical online tool that enables companies and investors to explore, assess, value and respond to water risks worldwide”. It aims to “help evaluate and inform long-term resilience planning and strategy”, the WWF statement states. The statement further quotes Alexis Morgan, WWF Global Water Stewardship Lead in saying that cities need to invest more in nature-based solutions and enhance the health of river basins, watersheds and wetlands to build resilience to water risks.

The statement also notes that GoI’s Smart City Initiative is a right step in this direction, stating that the holistic framework on water management laid down as part of the Smart City protocol, the initiative can help develop urban watersheds and wetlands to bolster freshwater conservation which are “critical” for maintaining the water balance of a city, flood cushioning, micro-climate regulation and protecting its biodiversity.

Water, at one point considered a never-ending natural resource, is already under severe strain in most parts of the globe. Nearly half of India’s population face high to extreme water stress. With close to 90% of groundwater consumed by farm activities, India faces a huge challenge in providing clean water for consumption to it’s ~1.3 billion population. In June 2019, 65% of all reservoirs in India reported below-normal water levels, and 12% were completely dry. On 19th June, 2019, Chennai, one of India’s largest urban metropolises, had declared “day zero” i.e. the day when all four main reservoirs servicing the city had run dry.

While serious government initiative is the need of the hour to tackle this impending crisis, the onus also lies on each and every citizen to acknowledge the water crisis and alter behavior accordingly. Unfortunately though, majority of India’s population remains unconcerned on this and water wastage / spillage continues to be a regular occurrence.

Unemployment rate increases in October, driven by drop in rural employment

by ~ Trinanjan Chakraborty

The unemployment rate in the country went up to 6.98% in October from 6.67% in the previous month, data released by the independent thinktank Center for Monitoring Indian Economy (CMIE) has shown. The increase in unemployment in Oct’20 was led by rural – with the rural unemployment increasing sharply to 6.90% from 5.86% in Sep’20. The urban unemployment though declined from 8.45% in the preceding month to 7.15% in Oct’20.

With the lockdown induced by the Covid-19 pandemic in full effect in April and May, the unemployment rate had shot up to unprecedented levels. But with the gradual easing of restrictions, the unemployment has come down in the subsequent months and in the last two months, has been below the level of March (pre-lockdown).

Among the large states, the unemployment rate in Oct’20 was worryingly high in Rajasthan (24.1%) and Haryana (27.3%). Some of the other large states with unemployment rate above the all India levels were: West Bengal (10.0%), Bihar (9.8%) and Jharkhand (11.8%), besides the UT of J&K (16.1%). The rate of unemployment was well below the national average in most of the southern states: Karnataka (1.6%), Tamil Nadu (2.2%), Telangana (2.9%), Kerala (3.9%) with Andhra Pradesh at 6.6%. The unemployment rate was also comparatively lower in the bigger states of UP (3.8%), MP (3.1%) and Maharashtra (4.1%). Among the smaller states, Tripura (11.6%), Goa (11.5%) and Himachal Pradesh (13.5%) had high unemployment in October.

NB: All data quoted in this article is from Unemployment Report for October’20 released by CMIE.

GST collections top Rs. 1 lakh crore mark in Oct’20

~ by Trinanjan Chakraborty

The GST collections in October’20 crossed Rs. 1 lakh crore mark – the highest in the current fiscal – indicating a sign of recovery in economic activities as per officials of the Department of Revenue. It is also the first time that the GST collections have crossed the 1 lakh crore mark since Feb’20, i.e. touching pre-Covid levels. The figure is also 10% higher than the collections in corresponding period last year, which stood at Rs 95, 379 crores. Revenues from import of goods was 9% higher while the same from domestic transactions (including import of services) was 11% higher as compared to Oct’19.

In the months of July, August & September, the GST collections had shown a negative growth of -14%, -8% and -5% vis-à-vis corresponding periods a year back. The GST collection amount had shown a growth trajectory in September as well, in line with greater relaxation on economic activities.

The gross GST collection in October comprised of: CGST – Rs. 19, 193 crore, SGST – Rs. 25, 411 crore, IGST – Rs. 52, 540 crore and Cess – Rs. 8011 crore. The total revenue earned by central and state governments after regular settlement in the month of October is Rs. 44, 285 crore (central) and Rs. 44, 839 crore (states).

With the festive season ongoing in the country, it is expected that the positive trajectory in GST collections will continue in November as well. Experts are cautiously optimistic, indicating that lasting of the growth pattern beyond November (when the traditional festive season ends) will give a definite answer to the question of economic recovery.

Kerala the best governed ‘big’ state, UP at the bottom – PAI 2020 reveals

~ by Trinanjan Chakraborty

The 2020 Public Affairs Index (PAI), released by the Bangalore based Public Affairs Center showed that Kerala was ranked at no 1 among large states in terms of governance performance for the period 2019-20. Kerala had an index score of 1.388 and was followed by its 3 southern neighbors, Tamil Nadu (0.912), Andhra Pradesh (0.531) and Karnataka (0.468) in the rankings for big states. This is the 4th year in a row that Kerala has finished top of the PAI standings. Uttar Pradesh, India’s most populous state, was ranked bottom among large states with an index score of -1.461. Odisha (-1.201) and Bihar (-1.158) rounded off the bottom 3.

Among small states, Goa was ranked first with an index score of 1.745 points, followed by Meghalaya (0.797) and Himachal Pradesh (0.725). The worst performing small states were: Manipur (-0.363), Delhi (-0.289) and Uttarakhand (-0.277). Chandigarh (1.05) was rated the best performing union territory, followed by Puducherry (0.52) and Lakshwadeep (0.003). The bottom 3 UTs were: Dadra & Nagar Haveli (-0.69), Jammu & Kashmir (-0.50) and Andaman & Nicobar Islands (-0.30). The full rankings are given below:

The Public Affairs Index (PAI) is a unique statistical tool developed to measure governance performance in the context of sustainable development, defined on the 3 pillars of equity, growth and sustainability. The index is released by the Public Affairs Centre, a non-profit thinktank headed by the former ISRO chief K. Kasturirangan.

India ranked 94th out of 107 countries on Global Hunger Index 2020

~ by Trinanjan Chakraborty

With a score of 27.3, India was ranked 94th out of 107 nations in the 2020 Global Hunger Index (GHI). Only 3 Asian countries were ranked below India – these were Korea DPR (96), Afghanistan (99) and Timor-Leste (106). As per the segment definitions, India’s index score of 27.3 put it in the SERIOUS bracket. The GHI subdivides the countries into 6 brackets with index score of less than/equal to 9 being classified as “low” and score of greater than/equal to 50 classified as “extremely alarming.” This year, there were no countries in extremely alarming while 3 – Madagascar, Timor-Leste and Chad were classified as “alarming.”

The Global Hunger Index (GHI) is a tool designed to comprehensively measure and track hunger at global, regional, and national levels. GHI scores are calculated each year to assess progress and setbacks in combating hunger. The GHI is designed to raise awareness and understanding of the struggle against hunger, provide a way to compare levels of hunger between countries and regions, and call attention to those areas of the world where hunger levels are highest and where the need for additional efforts to eliminate hunger is greatest. The GHI scores are calculated basis four dimensions:

  • Undernourishment i.e. the share of the population that is undernourished (insufficient calorie intake)
  • Child wasting i.e. the share of children under the age of five who are wasted (low weight proportional to height)
  • Child stunting i.e. the share of children under the age of five who are stunted (low height proportional to age)
  • Child mortality i.e. the mortality rate of children under the age of five

India is ranked in the last spot (107) on the dimension of “child wasting” i.e. proportion of children with weights lower than expected w.r.t height. According to GHI 2020, 17.3% of Indian children under the age of 5 had weight lower as compared to their height. This value was 15.1% in 2012 and has gone up in recent years. India’s numbers on the other dimensions were:

  • Undernourishment: 14.0%
  • Child stunting: 34.7%
  • Under-five mortality rate: 3.7%

On these 3 dimensions, the proportions have been declining steadily but the stunting rate is still alarmingly high. A comparison with Brazil, China and Russia also reveals the long way ahead for India in the battle on hunger.

GHI score<5<55.2
Undernourishment (%)<2.5<2.5<2.5
Child wasting (%)
Child stunting (%)
Child mortality (%)

Many experts have feared that the Covid-19 pandemic could further worsen the hunger scenario in most developing countries. They have also warned that hunger and poverty resulting from covid-10 could lead to a higher death count than directly caused by the pandemic. A new analysis by researchers from King’s College London and Australian National University, under the aegis of the United Nations University World Institute for Development Economics Research, for example, warns that the economic contraction caused by Covid-19 could push an additional  500 million people — roughly 8 percent of the Earth’s population — into poverty, reversing 30 years of economic improvement.

NB: The Global Hunger Index sources data from UNICEF and other UN agencies.