Tracking the economic impact of the second wave

This suggests that the economy is currently tracking about 9.6 percentage points below its pre-pandemic normal.

By Sonal Varma & Aurodeep Nandi

How strict are the lockdowns? The Oxford Stringency Index for India has risen to 69.9 as of April 13 from a recent low of 57.9 at the start of the month, reflecting the pan-India spread of the lockdown (see graphics). This is less stringent than at the height of the lockdown last April (100) and is similar to the state of the lockdowns in December. The more comprehensive Oxford Containment and Health Index—which captures lockdown measures as well as testing, vaccination and other healthcare responses—is trending at higher levels. Despite a much more severe second wave, a less stringent lockdown is consistent with the government’s strategy to focus on testing and vaccinations this time, although we do expect more states to impose restrictions in the coming weeks.

The Nomura India Business Resumption Index (NIBRI)—our weekly tracker of the pace of economic activity normalisation—has dipped to 90.4 for the week ending April 11 from 93.7 in the previous week (see graphics). This suggests that the economy is currently tracking about 9.6 percentage points below its pre-pandemic normal.

Mobility takes a hit

A key reason behind the fall in the NIBRI is deterioration in mobility indicators in response to the lockdowns and cautious consumer behaviour. Google Retail & Recreation and Workplace Mobility Indicators have fallen by 5.9 percentage points and 2.7 percentage points from the previous week, while the Apple Driving Index has dropped by a whopping 8.4 percentage points (see graphics). As of April 12, the Apple Driving Index dropped sharply across cities, particularly in cities in Maharashtra (Mumbai and Pune).

The Traffic Congestion Index (TCI), collected by Traffic Index, also shows a similar fall in traffic levels to about 10 as of April 13, down from 16 a month earlier, although above the levels (of about 2) a year earlier.

Mixed signals on non-mobility indicators

As of April 13, railway passenger revenues dropped by about 25% from a month ago, suggesting individuals have 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 also started to witness a correction in April—down 7.7% from a month ago. GST E-Way Bill collections in the first two weeks of April have declined by about 38% compared with the corresponding period in February-March (on average), reflecting less movement of goods both intra-state and inter-state.

Encouragingly, power demand has held up, rising 9.9% (versus its two-year-ago level) as of the week ending April 11, and average daily peak power demand across most states in the first 12 days of April continues to show an uptick from March levels (see graphics). Finally, the labour participation rate dipped marginally to 40% for the week ending April 11 versus 41.2% in the previous two weeks, while the unemployment rate rose, but thus far neither are as severely impacted as last April.

Economic outlook

Both the pandemic situation and its impact on growth continue to evolve as a higher rise in cases is increasing public and private proclivities towards restricted mobility. The key concern is when lower mobility translates into lower outturns in other real economic growth indicators. At the margin, the real-time tracking of the economy this week reveals deterioration from last week, when much of the slowdown was limited to mobility indicators (‘India: The Second Wave is Unlikely to trip up the Growth Recovery’, April 1, 2021). Overall, we expect a loss of sequential momentum in Q2-2021, even though we expect the medium-term growth upcycle to remain intact due to ongoing vaccinations, the lagged impact of easy financial conditions, frontloaded fiscal activism and strong global growth. We maintain our recently downgraded projection for FY22 (year-ending March 2022) GDP growth at 12.6% year-on-year from 13.5% previously.

(Excerpted from Nomura’s Asia Insights Global Market Research dated April 14, 2021)

Authors are research analysts, Nomura