From Reviving Economy in Feb to Staring at Recession in April

India’s Industrial Production numbers are out and they suggest that India’s dragging economy could have been on a revival mode before the pandemic hit us, with the manufacturing activity almost doubling. Meanwhile, RBI’s Monetary Policy Committee meeting was held on 9th April and it said that collecting data due to lockdown was difficult, hence making projections even more so. Complete Coverage: Coronavirus

Crux of the Matter

Potential of Industrial Sector As per the Index of Industrial Production (IIP), India’s Industrial growth in February 2020 soared at 4.5%, a hint at the reviving Indian economy. Industrial growth in February 2019 was only 0.2%. In February, the Indian manufacturing sector saw a 3.2% growth against 1.5% in January. Mining and Primary Goods also saw a sharp rise in the month of February before the pandemic Coronavirus hit the world. Whereas, capital goods and consumer durables declined further from the negative growth it witnessed in the month of January.

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Perplexed RBI The Reserve Bank of India (RBI), in the Monetary Policy Committee meeting on 9th April 2020, said that it overestimated India’s GDP growth. It had estimated GDP growth of 5.3% and 6.6% for July-September (Q2) and October-December (Q3) of 2019-20 respectively. However, India’s GDP growth rate in Q2 was 5.1% and in Q3 it was 4.7%, thereby RBI’s estimation was 0.2% (20 basis points) and 1.9% (190 basis points) more.

The downward surprise in Q2 stemmed from a stronger-than-anticipated drag from gross fixed capital formation and marginal weakness in private final consumption expenditure. In Q3, projection errors emanated mainly from a steep unanticipated contraction in gross fixed capital formation, which was the deepest in the new series of GDP. Reserve Bank of India

In the Monetary Committee Report, RBI stated that the Coronavirus is looming over the Indian economy like a spectre. It has estimated that the rupee would hover around 75 per dollar and Indian basket for Crude oil would be at around $35/barrel. It also estimated the Inflation to be at 2.4% in Q4. The hardest hit would be the fall in aggregate demand. Goldman Sachs projected India’s GDP growth to fall to 1.6% due to the effects of the pandemic. It had already projected India’s growth to be below 5% without the pandemic. Goldman also said that consumption activity that contributes 60% to the GDP will be badly hit because of the nationwide lockdown. In comparison, Goldman Sachs expects USA and Europe’s GDP to shrink by 6% and 9% respectively in the pandemic’s fallout.

Curiopedia

1. DJIA (Dow Jones Industrial Average) traded for all-time high on 12th Feb 2020, hitting 29,551 points, although it is trading at 23,719 as of today.

2. While SENSEX also traded at its all-time high on 16th January at 42,059 points and then dropping to its 52 week low on 23rd March at below 26,000 points.

3. Pharmaceutical companies like GlaxoSmithKline, IPCA Laboratories, Cadila Healthcare, and Cipla Ltd. reached there 52 week’s highest price during the pandemic.

Curated Coverage

1. Money Control – February IIP expands to 4.5% from 2% month-on-month

2. New Indian Express – India’s GDP may plummet to multi-decade low of 1.6 per cent in FY21: Goldman Sachs

3. Business Standard – RBI admits GDP forecasts prior to coronavirus outbreak were off the mark

4. Money Control – RBI Monetary Policy report: Post-COVID-19 estimates suggest global economy could slump into recession in 2020

5. RBI Publications – Monetary Policy Committee Meeting, April 2020

6. The Week – Goldman Sachs drops India’s GDP growth forecast for FY21 to 1.6 per cent

#Coronavirus #Manufacturing #RBI