Indian economy reported broader and stronger recovery in September from the pandemic-induced lows seen in April, rating agency ICRA said. It was narrower year-on-year contraction in five high-frequency indicators and growth in nine non-financial indicators in September, up from just three in August, that spurred stronger economic recovery, the agency added.
"The recovery in GST e-way bills, electricity, petrol and diesel in September 2020 provides a meaningful pointer to a broader economic revival, in our view. The improvement in some of the other indicators, such as auto output, reflects a combination of pent-up demand, healthy rural sentiment, and inventory build-up ahead of the upcoming festive season," ICRA said in its monthly economic review for September.
However, ICRA remained sceptical about the sustainability of the uptick on economic revival. It noted that while the goods signs that emerged in September might remain for the festive season, they are unlikely to persist.
"This trend may persist in the coming one-to-two months, before settling at more sedate levels after the festive season is over. Additionally, sharp favourable base effects have contributed to the high performance of some outliers, such as the output of Coal India Limited (CIL), which are likely to be unsustainable," ICRA said.
"Moreover, we remain cautious regarding the improvement in the performance of non-oil merchandise exports, in the light of a fresh wave of COVID-19 infections in many trading partners. Overall, the sustainability of the upturn that emerged in September 2020 is unlikely to be universal, and while fatigue may drive festive season sales, the momentum may subsequently subside," the agency further added.
Turning to quarterly trends, ICRA said that that there was a broad-based but expectedly uneven recovery in the performance of most of the non-financial indicators in September quarter as opposed to June quarter, which bore the brunt of coronavirus-mandated lockdown.
"The output of CIL and motorcycles, thermal electricity generation, and rail freight turned around to a growth in that quarter from the YoY decline in Q1 FY2021. As many as 11 other indicators continued to post a YoY contraction in Q2 FY2021, while hydroelectricity generation slipped back into a YoY decline in Q2 FY2021 from the muted growth in the previous quarter," the rating agency said.
"Based on these trends, we expect the contraction in India's real GDP to narrow to around 11-12.5 per cent in Q2 FY2021 from the sharp 23.9 per cent recorded in Q1 FY2021," it further added.