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Roots of economic recovery in India deepen in July: ICRA

31 Aug '21

4 min read

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With the further easing of the state-wise restrictions in India, especially across the southern states, the roots of the economic recovery deepened in July, according to rating agency ICRA. Despite a normalising base, eight of the 15 tracked high-frequency indicators like fuel consumption and domestic passenger traffic recorded an improvement in their year-on-year (YoY) expansion in July, it said.

The worsening in the YoY performance of some of the remaining indicators such as the output of passenger vehicles (PVs), scooters and motorcycles, was primarily due to the unfavourable base effect, ICRA said in a note.

Ten of the 13 non-financial indicators recorded a month-on-month (MoM) uptick in July, although the pace of the improvement expectedly eased from the levels seen in June. Encouragingly, the volumes of several indicators in July 2021 rose above their pre-COVID (July 2019) as well as the April 2021 levels. Diesel consumption dipped in July 2021, in contrast to the MoM uptick in the previous month.

As the states started unlocking, the mobility for retail and recreation improved sharply from around 60 per cent below baseline at end-May 2021 to 23 per cent below baseline by end-July 2021.

Given the post-vaccine demand revival in major export destinations and higher commodity prices, non-oil merchandise exports (in dollar terms) were robust at a four-month high $29.6 billion in July, even as a normalising base cooled the pace of YoY expansion to 35.2 per cent in that month (minus 3.6 per cent in July 2020) from 42.1 per cent in June 2021 (minus 10.1 per cent in June 2020).

Moreover, non-oil merchandise exports were a considerable 30.4% higher than the pre-Covid level of July 2019. The exports of gems and jewellery, engineering goods, electronic goods, textiles and apparels, etc. were the dominant drivers of the enthusing performance of non-oil merchandise exports in July 2021.

The YoY growth of cargo handled at major ports eased sharply to 6.7 per cent in July 2021 ( minus 13 per cent in July 2020) from 19.5 per cent in June 2021 (minus 14.6 per cent in June 2020). Moreover, cargo traffic during July 2021 declined by 6.2 per cent and 7.2 per cent, respectively, relative to the June 2021 and pre-COVID level i.e. July 2019, in contrast to the trend displayed by non-oil merchandise exports, suggesting that higher commodity prices have a large role to play in the relatively superior performance of the latter, ICRA said.

Encouragingly, the daily average goods and services tax (GST) e-way bills generated rose from 1.3 million in May 2021 to 1.8 million in June 2021, and further to 2.1 million in July 2021, reflecting the continued revival in the momentum of economic activity with easing state-wise restrictions.

Moreover, the daily average bills in July 2021 were a robust 23 per cent higher than the pre-COVID level of July 2019 (1.7 million). Subsequently, the daily average generation of GST e-way bills has remained flattish at 2.05 million in the first half of August 2021 (2.07 million in July 2021).

The YoY expansion in rail freight traffic declined modestly to 18.4 per cent in July 2021 from 20.5 per cent in June 2021. In sequential terms, rail freight eased by a marginal 0.1 per cent in July 2021 (in tune with the lower dispatches of coal). However, it exceeded the July 2019 level by a healthy 13.2 per cent, benefitting from a number of tariff and non-tariff measures taken by the Indian Railways in August 2020 to boost the operations and improve efficiency.

Subsequently, rail freight growth has moderated to 14.1 per cent on a YoY basis in the first 10 days of August 2021, and trailed the level recorded in the same period of July 2021 by 7.2 per cent, ICRA added.

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