Sharp rise in unemployment in December

In a somewhat worrying development, unemployment rate in the country in December 2020 has gone up sharply to 9.06% from 6.50% in the preceding month, data released by Center for Monitoring Indian Economy (CMIE) shows. The last time the unemployment rate was this high was in June – just after the lockdown with several sectors still closed – when the unemployment rate stood at 10.18%. Despite clear signs of economic recovery and almost all sectors operating, the unemployment figures show that the economy is still not in a position to absorb a sizeable chunk of the labor force.

While the increase in both urban and rural, it is sharper in the latter:

Unemployment Rate last 6 months (in %) ~ source: CMIE

According to CMIE, the rise in unemployment is partially attributable to a recovery in the Labor Participation Rate (LPR) which went up to 40.6% from 40.0% in Nov’20. CMIE estimates that number of people looking for work went up to 427 million in Dec’20 from 421 million in Nov’20. A large chunk of this addition to the labor force failed to find work, resulting in increase in the unemployment rate. Typically, the farm sector in India absorbs maximum labor. However, December is a month when historically farming sector sheds manpower. Dec’20 also saw this trend continue and hence the addition to the manpower remained unabsorbed.

The unemployment rate in Dec’20 was highest in Haryana – a staggering 32.5%, followed by Rajasthan with 28.2%. The other states/UTs with double digit unemployment rate in December are given in the table below:

Source: CMIE

One of the key reasons of the unemployment situation especially in rural is the struggling condition of MSMEs which were hit the hardest due to the prolonged lockdown and are still largely unable to recover to pre-lockdown capacity. Faster recovery of MSMEs especially in rural will be a key to turning around the unemployment scenario in the country.

Against this backdrop, it will be extremely crucial how the upcoming union budget handles the high unemployment (more so in rural) and provide the needed support to MSMEs for their recovery.

NFHS Round V results – summary of key child welfare measures in 10 large states/UTs covered in phase I

~ by Trinanjan Chakraborty

The results of Phase I of the 5th round of National Family Health Survey (NFHS) was released by the Union Ministry of Health & Family Welfare (MoHFW) recently. The 1st phase covers 22 states and UTs. IPD takes a look key child welfare measures of the 9 larger states (Andhra Pradesh, Assam, Bihar, Gujarat, Karnataka, Kerala, Maharashtra, Telangana & West Bengal) and the UT of J&K from the phase I results.

The three key measures looked at are:

Neo-natal mortality rate (per 1000 live births): Mortality during neonatal period is considered a useful indicator of both maternal and newborn health and care. Defined as Number of deaths during the first 28 completed days of life per 1 000 live births in a given year or period

Infant mortality rate (per 1000 live births): Infant mortality is the death of an infant before his or her first birthday. The infant mortality rate is the number of infant deaths for every 1,000 live births

Under 5 mortality rate (per 1000 newborns): The underfive mortality rate refers to the probability of dying before age 5 years per 1,000 newborns

The state-wise snapshots are given below:

NFHS Round 5 results show worrying trends on child growth & nutrition

~ by Trinanjan Chakraborty

The phase 1 results of the National Family Health Survey (NFHS) Round V, representing period 2019-20 was recently released by the Union Ministry of Health & Family Welfare (MoH&FW). The phase 1 results cover 22 states and UTs. For many of the relatively larger states/UTs, there is a worrying trend that can be observed on child growth/nutrition.

State: Andhra Pradesh

* Stunting, or low height for age, is caused by long-term insufficient nutrient intake and frequent infections | Wasting, or low weight for height, is a strong predictor of mortality among children under five. It is usually the result of acute significant food shortage and/or disease (UNICEF)

The stunting rate among children <5 years has remained almost unchanged from NFHS Rd IV and is high at close to 1/3rd of all children below 5. While wasting rate has witnessed a drop, severe wasting rate has gone up. Under-weight rate although having come down, in absolute terms remains quite high (~30%).

Assam:

Assam is one of the prime concern states with wasting rate and underweight rate both witnessing a rise from round IV. Severely wasted rate has also gone up. Stunting rate has witnessed a marginal drop but is very high – more than a third of children below 5 years in Assam are found to be stunted (lower height than as warranted by age).

Bihar:

Bihar has one of the highest stunting and under-weight rates among children below 5 in the entire country. While it has made progress on these aspects, it still has a long way to go. In a worrying development, both wasted rate and severely wasted rate has gone up – the survey reports.

Gujarat:

The levels of stunting rate, wasting rate and underweight rate all continue to be very high in Gujarat. Severely wasted rate has risen further and is in double digit now.

J&K :

Both wasted rate (including severely wasted rate) and underweight rate has gone up very sharply in the UT of J&K from round IV to the current round. Stunted rate has dropped a shade but still is on the higher side at > 1 out of 4.

Karnataka:

Karnataka has witnessed a decline in all the metrics from round IV. Particularly impressive is the improvement achieved in wasting rate. Despite, both stunting and underweight rates stand at around 1/3rd of all children under 5 and needs significant work.

Kerala:

In a worrying development, Kerala – one of the best performing Indian states on human development parameters, witnesses a worsening of the scenario on both stunting and underweight rates among children <5 years.

Maharashtra:

Maharashtra, one of India’s largest and more affluent states reports a sad state of affairs as far as child growth/nutrition is concerned. More than a third of children below 5 years are stunted and same proportion is also underweight. More than 1/4th are wasted.

Telangana:

Telangana has witnessed a worsening of the situation across parameters. Stunting rate, Wasting rate (including severely wasted) and Underweight rate have all gone up in the state vis-à-vis the last round of surveying.

West Bengal:

NFHS round V levels in West Bengal across metrics remain almost at round IV levels – at an absolute level, stunting and under-weight rate is on the higher side.

The Global Hunger Index (GHI) 2020 report (ranked for 2019) placed India at 94 out of 107 nations and qualified the status of the “hunger” problem in India as “Serious.” The GHI is based on four key parameters: child wasting, undernourishment, child stunting, and child mortality.

While several large states like UP, MP, Rajasthan, Tamil Nadu as well as agriculturally prosperous states like Punjab & Haryana are part of phase II of the NFHS – V, the phase I results on child nutrition & growth when read in conjunction with the GHI 2020 certainly is a cause of major concern. Both NFHS round V and GHI 2020 represent pre-Covid19 levels. It can be surmised that the scenario would have only worsened due to the indirect effect of the pandemic.

The UN has already warned that globally, 130 million people are likely to be pushed into starvation due to the pandemic – South Asia and Africa being most vulnerable regions. Children are likely to be worse hit.

IPD hopes that the MoH&FW would initiate positive action basis the findings of NFHS-V to redress the worsening child growth/nutrition trend in many Indian states.

A Glance through the Current Status of Indian Economy

~Anindya Sengupta

The Ministry of Statistics and Programme Implementation has recently published the growth numbers of second quarter of FY 20-21. The first quarter witnessed a record fall in GDP growth rate to -23.9% mainly because of the nationwide lockdown due to the COVID-19 induced pandemic. The second quarter starting from July, 2020 witnessed relaxation of lockdown with the economy gradually opening up. Moreover, the Government and the Reserve Bank of India also announced host of economic packages to enable the recovery.

Given this backdrop it was expected that the second quarter growth numbers will show some sign of recovery. The second quarter GDP growth rate stood at -7.5% as against 4.4% growth in the same quarter, FY 19-20. So India went to technical recession due to negative growths in two consecutive quarters.

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

Let us dig deeper into the components of GDP to examine how has been the progress across different aspects. Private Consumption and Gross Capital Formation ( Investment) account to over 80% of India’s GDP. Government expenditure contributes to another 10-15% of the GDP. So together these three components drive India’s GDP.

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

All the three components have the Q2, 2020-21 levels similar to 2017-18 , same quarter. So it can be said that as per all the three major components, Indian economy has leaped back three years during this period of recession.

Private consumption which is a reflection of demand in the economy was witnessing a slow down in growth since last couple of years. The level of growth achieved in 2018-19 was lower than that achieved in 2019-20. Now it has seen a decline in 2020-21 and is just a bit higher than the 2017-18 levels. Indian economy was already witnessing a slow down in demand even before the pandemic and has been a huge concern. With the pandemic kicking in, the demand has witnessed a decline. This is a result of multiple factors. One of the factors can be that people have been holding on to their expenses because of the uncertainty in the economy. One extension to this can be people are forced to hold on to their consumption. One of the most important factors is also the fact that many people have lost their income during this lockdown and also witnessed reduction in income which has a direct impact on consumption.

Slowdown or lack of demand leads to slowdown or negative growth in investment as with lower demand in the economy, there will be lower investments. This has been reflected in the investment numbers and there is a steady decline since 2018-19. So the decline in investment numbers started before the pandemic itself and hence recovery will not only mean to go back to the pre pandemic level but also will mean to witness growth with respect to the 2018-19 numbers. There has been host of measures taken by the government and the central bank, both in pre pandemic time (reduction in corporate tax) and post pandemic time ( measures in terms of providing liquidity and credit) to boost up investment. Pre pandemic measures did not bring the desired boost up. The post pandemic measures needs to evaluated further in the coming quarters. One reason for pre pandemic measures not been so effective has been the lack of demand in the economy, which was not addressed much. One will invest more if and only if there is demand in the economy. So demand measures might be more effective in boosting investment.

Keynesian economics calls for increased government expenditure when the economy is going through slowdown or is in recession. This is regarded as a means to bring back the economy to the recovery path. The Q2 numbers suggest that our government expenditure numbers have fallen significantly and at present it stands at the level of q2, 2017-18, which was a normal year and so was the next years. So a need to government expenditure is perhaps the most obvious prescription. However, it also needs to be understood that there are fiscal pressure and increase in government expenditure can lead to higher fiscal deficit which might be against the international norms. Moreover with slowdown in demand, government tax collection also goes below the target level and hence reduces the pool which can be spent. But many economists argue that during difficult times the focus should be recovery of the economy only and for that if the fiscal deficit increases, it should not be a issue.

So a detail study of different components of GDP suggest that economy can lead to a path of recovery if there is a boost up in demand which will have an indirect impact on investments. In order to boost up demand more cash in the hands of people is a viable solution and that will mean increase in government expenditure.

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.

Conclusion

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.