Economy in the time of the pandemic: The Good, The Bad and The Ugly

As more and more economic data comes in, it becomes clearer that the "recovery" we saw in June was a blip, fuelled by pent up demand. Overall, the situation in India doesn't look good.

We are now more than five months into the pandemic and the associated lockdown. Officially, we in India are in a phase called “Unlock 3.0”. Educational institutions are yet to open. Cinema halls as well. Malls and gyms are open in many Indian cities, though swimming pools haven’t been allowed to open. In most of India, “night curfew” and “weekend curfew” are things of the past.

Restaurants have been allowed to open but not many have. People are still sceptical about eating out, since that involves sitting in closed spaces without masks for extended periods of time. Hence, low demand means restaurants aren’t open. Zomato, a restaurant app and food delivery company, in its latest report, expects 40% of restaurants in India to permanently shut down.

That report has this graphic:

In all big cities in India, at least 70% of the restaurants aren’t open for dine-in. This doesn’t even include Mumbai, where dine-in restaurants haven’t been permitted to open, yet. The situation looks dire.

What does the rest of the economy look like?

The Good

Nomura has a “business resumption Index” which clocked 73.7 for the week ending August 16th, compared to 72.3 a week earlier. This index had stagnated around 70 through July. One way to read this is that the economic activity now is 73.7% of the normal.

That we are including a 1.4 percentage point increase (in a week) in NIBRI in “the good” must tell you how the economy is doing overall. In other words, there is recovery, but we still are well below normal levels.

Residential real estate launches are back on track. Demand for housing in tier 2 and 3 cities is up. And as a barometer of construction activity, steel prices are also up (bizarrely, this article fails to mention the level of the prices, only talking about the increase), though some of this could be due to pent-up demand and previously stalled projects..

Rail freight numbers indicate a recovery. And a sign of how bad the pandemic has been might come from the fact that we are now celebrating traffic congestion in Mumbai, and an increase in pollution levels!

In other “good” news, the Gross Merchandise Value of goods sold on Flipkart is higher than pre-covid levels, though a lot of this can be explained by people doing the same things differently - rather than going out to shop, people are ordering in, and so Flipkart is selling more. Amazon and Flipkart are ramping up warehouses in small cities.

In any case, Indian newspapers are reporting that “consumer sentiment is slowly shifting to cautious optimism”. Another indicator of overall well-being is contribution to the Employees Provident Fund Organisation. In February, 550,000 establishments were contributing which fell to 330,000 in April. Now about 485,000 establishments are contributing. This sort of correlates with Nomura’s business recovery index being at about three-fourths?

Elsewhere, advertisers are predicting that advertising spending will recover in the second half of the financial year. Sometimes we wonder if people issue forecasts because that is what they believe based on the data, or if they do so in sheer hope.

As we move to the “bad” section, this Mint article summarising Q1 (April-June) results across companies serves as a good bridge. Some companies and sectors are doing well while some are not.

The Bad

Start with this tweet thread by Bloomberg Quint to get an idea of how bad things are.

BloombergQuint @BloombergQuint

India's IIP contracts for the fourth consecutive month in June.

Industrial output fell for the fourth straight month. Essentially, it seems like the “recovery” we saw in June was due to the pent up demand of people who were unable to buy stuff in April and May. The Hindustan Times offers some nice analysis of the numbers, and has this graphic.

Passenger vehicle sales were down by a fourth in July (compared to last year). Business Standard had this nice graphic about this:

And if you want to know how bad things are, an ET poll suggests that the Indian economy has shrunk by anywhere between 14% and 26% in the April-June quarter.

Just to remind you, we are yet to reach the “ugly” section.

The Ugly

Data from CMIE, a private body, suggests that 5 million salaried Indians lost their jobs in July. The article on the CMIE website itself about this is a bit confusing and hard to parse. Nevertheless, we are including it here in the spirit of “going straight to source”. It contains this snippet:

Of the 91.2 million such jobs lost in April, 14.4 million came back in May, 44.5 million in June and 25.5 million in July. Only 6.8 million remain to return.

“Only 6.8 million” job losses maybe puts things into perspective - on how horrible things are. Another CMIE report, reported here in Mint, suggests that India’s overall unemployment rate is at a 5-week high.

The overall unemployment rate climbed to 8.67% in the week ended 9 August as against 7.19% in the week to 2 August, according to fresh data from the Centre of Monitoring Indian Economy (CMIE). This is the highest unemployment rate since the week ended 12 July and even higher than the overall monthly joblessness of 7.43% recorded in July.

The rural unemployment rate jumped almost two percentage points in the week ended 9 August to an eight-week high of 8.37% from 6.47% in the previous week as monsoon intensified

In other words, even by pandemic standards, India’s unemployment is rather high.

Over the last 30 years India has succeeded in pulling up millions of people from poverty. The current economic crisis might reverse many of these gains, cautions the World Bank.

Mint has two other articles that show how bad things have gotten. Firstly, here are stories of distress of small borrowers. This is likely to have a cascading effect on microfinance lenders and banks as well.

And here is another nice long read about people returning from the Gulf, who are now jobless. Kerala, the state many of these people come from, doesn’t have that much of a production economy, so it remains to be seen how they will be accommodated.

Things are getting really ugly, and recovery seems some distance away.