Mobility hit, but lockdown stringency is unchanged

The Traffic Congestion Index (TCI) has also fallen further to 7.5 as of April 18 vs ~10 as of April 13, and down from 16 a month earlier, although above the levels (of ~2) a year earlier.

By Sonal Varma & Aurodeep Nandi

Despite the rapid deterioration of the second wave situation and the imposition of night curfews, weekend lockdowns and other partial restrictions across more than 17 states, the needle has not moved on the extent of lockdown stringency in India. The Oxford Stringency Index for India remains constant at 69.9 as of April 18, similar to last week.

The more comprehensive Oxford containment and health index—which captures lockdown measures as well as testing, vaccination and other healthcare responses—also remains constant from last week’s levels. Overall, barring a few states (Maharashtra and now Delhi), restrictions still do not appear as stringent.

Nomura India Business Resumption Index (NIBRI) is down: Our weekly tracker of the pace of economic activity normalisation has dipped to 83.8 for the week ending 18 April vs 88.4 in the previous week (revised down from 90.4). This suggests that the economy is ~16.2pp below its pre pandemic normal – and at levels last seen in end-October.

Mobility takes a beating: A key reason behind the fall in NIBRI is a deterioration in mobility indicators in response to the restrictions and cautious consumer behaviour. Google retail & recreation and workplace mobility indicators have fallen by 1.3pp and 3.6pp from the previous week, respectively, while the Apple driving index has dropped by a significant ~19pp, particularly in the cities of Maharashtra (Mumbai and Pune). The Traffic Congestion Index (TCI) has also fallen further to 7.5 as of April 18 vs ~10 as of April 13, and down from 16 a month earlier, although above the levels (of ~2) a year earlier.

Mixed signals on non-mobility indicators: As of April 18, daily railway passenger revenues dropped by an average of 25% from a month ago, as individuals cut back on their travel plans, although this is better than last April, when revenues dipped to zero. Railway freight revenues, which had held up relatively well until end-March, have corrected by an average of 7.4% m-o-m in April, although it has improved from last week. GST E-Way Bill collections declined by ~38% for the first two weeks of April as compared with the corresponding period in February-March (on average), reflecting less movement of goods both intra-state and inter-state.

Although power demand has weakened by -3% w-o-w for the week ending April 18 vs 3% growth in the previous week, it remains ~12% higher than its 2-year ago level. Average peak power demand across most states continued to show an uptick in April vs March. Finally, the labour participation rate remains unaffected—inching up to 40.2% for the week ending April 18 from 40.1% in the previous week, while the unemployment rate fell marginally.

More pain before gain: The rising death rate and anecdotal evidence of hospital infrastructure getting severely burdened, suggests that the current status quo on lockdown stringency, may be compromised in coming weeks. For example, the state of Delhi and some cities in Uttar Pradesh have followed Maharashtra in imposing a complete lockdown (albeit for a week). Most of the other major states have stuck to night curfews or weekend lockdowns, but may be compelled to impose stricter restrictions, if their hospital capacity runs out.

This suggests that the economic impact of the second wave may very well intensify in coming weeks Consequently, despite the sharp drop in our business resumption index (NIBRI), it probably has yet to bottom. The key risk is that the drag in mobility widens to impact the broader economy, although we still believe the impact will be short-term (1-3 months) and less severe (than in Q2 2020), due to a more pandemic-adept economy.

Overall, we expect a loss of sequential momentum in Q2 2021, but once the second wave passes (we assume July-September), it should result in a release of pent-up demand in the subsequent quarters. In addition, the economy should benefit from faster vaccinations after June, the lagged impact of easy financial conditions, front-loaded fiscal activism and strong global growth. We expect GDP growth at 11.5% y-o-y in 2021, up from 6.9% in 2020, with downside risk.

Excerpted from Asia Insights, Global Markets Research, Nomura, dated April 19. 

Varma is chief economist, India and Asia ex-Japan, and Nandi is India economist, Nomura. Views are personal