Recovery or release of pent-up demand?
This festive season, e-commerce giants reported a 55% jump in sales in just one week to $4.1 billion, compared to $2.7 billion during the same period last year. Other high-frequency economic indicators showed similar positive trends: Vehicle registrations in September grew by 14% compared to the previous month; electricity demand shot up by 10.2% year-on-year in October; exports went up by 5.3% after shrinking for six months; and unemployment fell from a high of 23.52% in April to 6.67% in September this year, according to research agency CMIE.
All this has enthused the government and many analysts to aver that green shoots are visible, and a turn-around on the economic front has come about. The positive indicators are indeed good news for most as the fear of a large number of firms shutting down as a result of the pandemic-induced economic reversal has been a genuine concern for all.
The government should rightfully claim credit for much of it with its progress in unlocking the economy. But the pandemic curve still continues to rise, albeit at a slower pace. The fear of a second wave too continues as people come out for festivities and elections, which may force localised lockdowns and strain the health infrastructure of the country.
In addition, many remain sceptical on whether the green shoots are signs of a broad recovery path or merely release of pent-up demand pushing a spurt in economic activities. The Society of Indian Automobile Manufacturers believes automobile sales across segments will fall by 25-45% this fiscal year, despite the bonanza sales in September and October.
While car sales have risen, two-wheeler sales, an indication of broader economic recovery, are still in negative territory. There are also reports of continued balance sheet stress for firms and shadow banks, besides continuation of depressed capacity utilisation in manufacturing sectors and inventory overhang in residential housing.
There are consequently fears that without injections of investment ushered in by government policy intervention, the economy may well settle down to a slower recovery and growth path spread over many years. If we stumble on to the slower path, India would be pushed down in the economic sweepstakes as others recover faster and take up our slot in the global pecking order.