Leading key indicators suggest loss of momentum during January and mid-February, with the recovery in Indian economy entering a consolidation phase, according to a recent report. Leading and concurrent high frequency indicators are showing signs of plateauing at about 3 per cent below pre-lockdown levels, which is a cause for worry, says Axis Bank.
"Axis Bank's composite index of economic activity indicators suggest a loss of activity momentum since January 2021, but we think that recovery momentum might actually be somewhat stronger, for the following reasons. Both manufacturing and services sub-indices (although the number of indicators for the latter are thin) signal that activity is at pre-lockdown levels. (The slight gap in these levels is due to the difficulty of classification of the indicators which are included in the consolidated Index, largely mobility related)," says Saugata Bhattacharya, Chief Economist, Axis Bank.
As per the report, indicators on freight and transport show robust sign. Both rail and port freight growth are positive, indicating both internal and trade traffic (and consistent with export growth, although part of this is due to high commodities prices), it said.
The report, however, said that other signals are showing mixed sign. Growth in FASTag collections remains strong, but this is also likely due to increased adoption. This inference was supported by mobility metrics, which showed a broad tapering off of work-related travel, although rising recreation and shopping related movement (which are likely to be shorter distance), it said.
"Fuel consumption growth in 2021 had also remained at December levels, even as vehicle registrations have fallen sharply. E-way bill generation for GST have also remained quite static since October '20; this is a robust indicator of freight movement," it added.
Electricity consumption, which is also an indicator of activity, showed that demand converged to 2020 levels after strong increases in January and early February. The report suggests that the cold weather might have had a role in the earlier growth.
As per the report, official manufacturing and trade data support these inferences. "Base effects in the Index of 8 core sector industries have been minimal in growth over November-January, indicating that the growth rates are reflective of output. India's export growth, however, has been very good for the past couple of months, although the effect of high commodities prices need to be better understood," it said.
The report noted that jobs and employment remain a matter of concern. Data from CMIE, a private think tank, show an improving unemployment rate in urban areas, while it is rising in rural. This is also supported by MNREGA claims which say that the number of persons demanding work under this scheme has been rising since December 2020, and incremental person days work generated has also remained high, indicating continuing dependence on this income support scheme, it said.
The Union Budget has indicated high spends in fourth quarter of 2020, which is likely to have an effect on the final leading indicators signals for February and March, it said.
Recently, ICRA also claimed that Indian economy lost momentum in January and entered into a consolidation phase. However, ICRA does not see the fall in economic indicators as a sign of alarm regarding the sustainability of the recovery. The rating agency said 9 of the 15 economic indicators, including passenger vehicle output, vehicle registration, generation of GST e-way bills and petrol consumption, recorded a weakening in year-on-year (YoY) performance in January 2021 as compared to December 2020.