We are dealing with a pestilence that spreads not linearly but in waves, and peaks inevitably give way to troughs with learning experiences during and between that wound but also strengthen. And so, ‘we hope in the face of difficulty. Hope in the face of uncertainty. The audacity of hope!’ – states the Reserve Bank of India’s April Bulletin. As the virus morphs and mutates, deadlier and faster with every new strain, the central bank seems to be relying heavily on hope to steer the badly bruised economy.
While much of the debate at the start of the pandemic hinged on the shape of recovery, and how fast the world could nurse its wounds, the subsequent waves have only made even this hope flicker. While India witnesses a humanitarian crisis, improved signals from other parts of the planet does ignite the hope that all will be well with the world again. Here’s a look at the factors that could brighten or dim our hopes for a better economy.
Agriculture and allied commodities exports showed resilience despite Covid disruption, growing in double digits during 2020-21. Exports, especially of wheat, non-basmati rice, oil meals and spices, registered strong growth. This helped India improve the favourable trade surplus it enjoys in agricultural commodities.
According to industry representatives, agriculture exports are expected to continue on the robust growth path in future on account of access to newer markets combined with strong demand from traditional markets for Indian agricultural produce.
Timely harvesting of rabi crops has opened up space for summer sowing, which is already 17% higher than in the previous year (as on April 15, 2021). Although summer crops (mainly paddy, pulses, coarse cereals and vegetables) account for a small share of total agricultural production, their importance has increased in recent years as they constitute an additional source of income for farmers, besides contributing to fodder supply.
Electricity consumption, a real-time indicator of economic activity since it cannot be stored, has risen sharply in April on top of steady growth in the seven preceding months.
A cross-country comparison of unemployment rates reveals that in India, the unemployment rate has reverted to pre-pandemic levels after the sharp rise seen in April 2020. The current rate of unemployment in India is somewhat similar to that in the US, Canada and the EU.
As per the household survey of the Centre for Monitoring Indian Economy (CMIE), employment conditions brightened in March, with the unemployment rate sliding to 6.5% from 6.9% a month ago. In the rural areas, the unemployment rate dropped to 6.2%, while for urban areas, it inched up to 7.2%. Hiring is retail improved by 15% in March 2021 over the previous month.
India’s merchandise exports recorded an all-time monthly high of $34.4 billion and imports of $48.4 billion in March 2021, reflecting a rebound in global demand, revival in domestic activity and the impact of a favourable base effect. Consequently, exports clocked a growth of 60.3% in March. Export growth was broad-based as 28 out of the 30 major sectors, accounting for 92.1% of total exports, registered positive growth, with engineering goods, gems and jewellery, drugs and pharmaceuticals and chemicals being the lead contributors.
Overall, merchandise exports contracted by 7.3% to $290.6 billion in 2020-21 from $313.4 billion a year ago. Thus, despite the sharp contraction seen in Q1 on account of Covid-19 induced disruptions, the contraction for the year as a whole turned out to be moderate, buoyed by a sharp recovery in Q3 and Q4.
March turned out to be a busy month for investors in initial public offerings, as nine companies came out with main board IPOs and raised Rs 6,083 crore from the primary capital market. In view of the upbeat listing day performance of IPOs and buoyant secondary market conditions in the past few months, companies have been aggressively pricing their IPOs.
With the second wave forcing authorities to restrict the movement of people, activity in contact intensive sectors such as hotels, airlines and travel is set to suffer again.
Google mobility for retail and recreations, which tracks mobility trends for places like restaurants, cafes, shopping centres, theme parks, museums, libraries and movie theatres, shows a steady decline in activity across States — a drop of 24.2% in March-April so far (April 16, 2021) compared with a decline of 22.7% below the baseline in February. Maharashtra, Gujarat and Delhi, with a wider spread of cases, are recording a sharper drop in mobility; significantly below the national average.
Moreover, with the third wave of the virus striking, the tourism sector is likely to trail below pre-pandemic levels, prolonging the weakness in travel and transport services further. For Q1:2021, data available so far emit mixed signals, with financial services, container shipping and construction remaining above trend while air transport and information, computers and telecom index showing weakness.
Domestic air passenger traffic at around 77-78 lakh in March remained flat in relation to a year ago. The recent travel bans will further affect domestic travel and tourism industries.
The RBI points to two major global trade developments that could reshape India’s foreign trade going forward. The first is global chip shortages, which initially put a break on automobile production, and is now permeating to other sectors, and the second is elevated freight prices resulting from container shortages, which have been aggravated due to the six-day mega blockage of the Suez Canal.
The current global chip shortage is due to inter-industry chip demand-supply mismatch caused by Covid disruptions. This reflects a production shift from chips for automotives to chips for home/office items.
With car sales showing signs of picking up, the chip shortage has impacted all major industries dependent on semiconductors, leading to production suspension by major car markers across the world. India imported around $54.3 billion worth of electronic goods in 2020-21 of which chip imports constituted around 20%, primarily from China and Hong Kong, followed by South Korea and Singapore.
(Source: Reserve Bank of India Bulletin, 2021)
The ADB forecasts India’s economic growth to moderate to 7% in FY22, on account of disappearance of base effect. The economy is expected to have contracted by 8% in FY2020, in line with the government’s second advance estimate.
“With large government stimulus and the ongoing vaccination drive, we expect economic activity will continue its recovery that started from the third quarter of FY2020 and rebound strongly in the current fiscal year with an uptick in domestic demand, especially in urban services,” said ADB Country Director for India Takeo Konishi.
“India’s economy is expected to grow 11% in fiscal year 2021, which ends on March 31, 2022, amid a strong vaccine drive. However, the recent surge in Covid-19 cases may put this recovery at risk,” said the Asian Development Outlook (ADO) 2021. So it’s fingers crossed all over again.
Elsewhere in the World
- Europe’s economy shrank 0.6% in the first three months of the year. The fall in output for the 19 countries that use the euro currency was smaller than the 1% contraction expected by economists but still far short of the rebound underway in the United States and China
- The US economy grew 1.6% during the first quarter, with business supported by strong consumer demand. On an annualised basis, the US grew 6.4%. President Biden’s $1.9 billion relief package, coupled with spending from earlier support efforts, will mean additional cash support of about 11-12% of annual economic output for this year, according to economists at UniCredit bank|
- France showed unexpected growth of 0.4% compared with the quarter before, while the main negative surprise came in Germany, the continent’s largest economy. Activity there shrank by a larger-than-expected 1.7% as the manufacturing sector was hit by disruption of parts supplies on top of the hit to services and travel from pandemic-related restrictions
- Worry about a potential second straight lost vacation season has clouded the outlook for Mediterranean countries Italy, Spain and Greece, which rely heavily on tourism. Travel receipts in Greece sank 75% last year
- The International Monetary Fund states that the global economic outlook is increasingly mired in looming uncertainties
The pandemic has had its positives too. Global carbon dioxide emissions fell by over 2 billion tonnes in 2020 after rising steadily for decades.
The United States accounted for nearly a quarter of this reduction, with a drop in emissions by over 600 million tonnes. India followed, with a reduction of around 200 million tonnes. India’s CO2 emissions reduction in 2019-20 was the first year-on-year fall in four decades.
With heightened levels of the risk of the earth warming beyond a critical threshold, three elements will define the way we live, going forward: fresh water resources; green energy and clean air. (RBI)
As per the latest IMF estimates, the two-decade long trend of global poverty reduction seemed to have reversed with almost close to 95 million more people expected to have fallen below threshold poverty in 2020
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