Economy: Revival After April-June

Thanks to boosters of vaccination, ample liquidity and upswing in global growth

- Sonal Varma

India’s economy and its citizens have just endured a harrowing experience with the second Covid wave. But as we look ahead to coming quarters, we see reasons for optimism.

The economic impact of the second wave should be localised to April-June 2021-22. The sharp drop in the virus caseloads has enabled states to embark on a gradual reopening of the economy. This is helping the economy turn a corner. With people out shopping and driving, mobility has perked up. Power demand has picked up, after a steep fall in May. As shops and factories reopen, the labor market is also gradually on the mend, with the unemployment rate lower.

We have combined such indicators into an aggregate index called the Nomura India Business Resumption Index to measure the state of business resumption. Pre-pandemic, in February 2020, this index stood at 100. It dropped to a low of 45 during the first wave, before nearly fully normalizing in mid-February 2021. The second wave derailed the swift V-shaped economic normalisation, pushing the index back down to 60 in the third week of May, but the reopening in June has already led to a sharp rebound in our index to 81 as of June 20, with a further rise on the cards.

Other high-frequency data, such as railway freight and passenger revenues, goods and services tax e-way bills – all point to a similar story: A sharp drop in May, but also a swift revival in June, so the economic impact of the second wave should be limited to this quarter.