NEW DELHI: With the entire country in the grip of localised lockdowns, India’s business activity has shrunk to levels last seen in June 2020, according to Japanese brokerage Nomura.
The Nomura India Business Resumption Index (NIBRI), which tracks business activity on a weekly basis, fell sharply to 64.5 for the week ended May 9 from 69.7 a week ago. This is 35% below pre-pandemic levels.
“The sharp drop in NIBRI suggests that the rolling state-wide lockdowns are hurting sequential growth. International experiences suggest the correlation between mobility and gross domestic product (GDP) growth is much weaker during the second wave, due to more targeted restrictions and more pandemic-adept consumers and businesses,” said Sonal Varma and Aurodeep Nandi, economists, Nomura.
The fall is driven by a sharp decline in mobility due to coronavirus-induced lockdowns and it portends a bleak outlook for the economy.
However, Nomura cautions that the drop in mobility ‘exaggerates’ the hit to economic activity.
“International experiences suggest the correlation between mobility and GDP growth is weaker during the second wave, due to more targetted restrictions and more pandemic-adept consumers and businesses,” said Nomura’s economists.
Although the Central government has said it will not impose a blanket lockdown, most states are already under some kind of a lockdown. If localised restrictions continue for another month, economists warn of further risks to GDP growth.
Second quarter to be challenging
Nomura has lowered GDP growth forecast for 2021 to 9.8% from 11.5% (for FY22, to 10.8% from 12.6%).
"We expect a localised hit in the 2nd quarter and believe medium-term tailwinds (vaccine pivot, global recovery, easy financial conditions) remain intact,” it said