Indian Economy Updates for April 2021

Real economy indicators started to weaken in April in response to local

restrictions imposed to curb the spread of the Covid-19 virus.

The restrictions, which were initially only implemented in a few states, are now
being implemented throughout the country as the virus spread. Monthly
indicators available so far show weakness in the movement of goods and
employment. Others data points like trade and the Purchasing Managers
Index held up.

MGNREGA Demand Rises Demand for work under the government’s

flagship employment guarantee scheme has remained high since the onset of
the pandemic and rose further in April. It was at its highest since July 2020
last month. Over four crore persons demanded work under the Mahatma
Gandhi Rural Employment Act in April 2021, compared to 3.6 crore persons in
the preceding month, the monthly data shows.

Unemployment Rate Inches up Unemployment rate, as measured by

CMIE, rose to 8% in April 2021, compared to 6.5% in the previous month.
Urban areas continued to record higher unemployment in comparison to rural
areas. The urban unemployment rate of 9.8% for April 2021 was the highest
since August 2020. “In the month of April, compared to March, we have lost
75 lakh jobs. That is what has caused the jump in the unemployment rate,”
Mahesh Vyas, managing director at CMIE, told PTI on May 3.

E-way Bill Collections Weaken E-way bill collections in April are the
lowest since November 2020. The contraction of 17.5% on a month-on-month
basis in April 2021 was the sharpest since April last year. Collections slipped
to 5.9 crore in April 2021 compared to 7.1 crore in the previous month.
Truck Rental Prices Fall Truck rentals fell by 18-27% for major routes
during April 2021, according to data shared by the Indian Foundation of
Transport Research and Training. Diesel prices were steady in April but the
slump in factory output due to production cuts and closures in may states,
further complicated by the lower arrivals of fruits and vegetables, caused truck
rental rates to drop, said SP Singh, senior fellow and coordinator at IFTRT.

Rail freight volumes were also down by 7% month-on-month, compared

with 0.4% increase in March 2021, according to Sameer Narang, chief India
economist at Bank of Baroda.

Fuel Demand Eased Demand for petrol fell to the lowest since August,
according to a Bloomberg report. It contracted by 6.3% in April on a
monthly basis, while the demand for diesel eased by 1.7% m-o-m, Bloomberg
reported citing preliminary data from officials with direct knowledge of the
matter. Electricity Demand Falls Modestly Demand for electricity showed
signs of weakness in April but remained volatile. A seven-day moving average
of demand for electricity to smoothen out daily volatility, showed signs of a
decline through most of April but showed a modest bump up towards the end
of the month.

Power consumption has fallen only modestly and is broadly holding up in

line with seasonal trends, said Rahul Bajoria, chief India economist at
Barclays.

Manufacturing PMI Holds Up, the seasonally adjusted IHS Markit India
Manufacturing PMI was at 55.5 in April compared to 55.4 in March. It
remained above the 50-mark, which indicates expansion. Growth rates for
new orders and output eased to eight-month lows amid the intensification of
the Covid-19 crisis, even as export orders surged the fastest since October
last year, said IHS Markit in its release.

Foreign Trade Resilient Foreign trade showed signs of sequential

weakness according to preliminary data released on May 2, 2021. However,
economists attribute this to seasonality. Merchandise exports fell to $30.21
billion in April compared to $34.4 billion in March. Imports fell to $45.45 billion
last month compared to $48.4 billion in March.

The Big Picture “Cumulatively for the month of April 2021, we estimate a
sequential loss in economic activity to the tune of about 15-20%,” said Quant
Eco Research in a note on May 3. “The decline has been led by consumption-
based lead indicators, with the early signs of a slowdown being visible in
railway passenger travel, restaurant related online searches and mobility
indicators, accompanied by a rise in unemployment rate.” Narang of Bank of
Baroda said the signs of weakness in April is evident and far greater than can
be explained by seasonality. “The end of the financial year in March may
mean greater movement of goods, reflected in higher e-way bill collections
and cost of truck rentals. But, the decline in both indicators is significant even
after adjusting for seasonality.” As India’s second Covid-19 wave continues,
there is growing uncertainty around the number of cases and fatalities, said
Bajoria. “Slowing vaccinations are also hurting India’s recovery prospects. We
lower our FY21-22 GDP growth forecast by 100 basis points to 10% to reflect
this uncertainty.”

After minor job losses in February and March, India’s second pandemic wave crashed
across the labour market in April, erasing at least 7.35 million jobs. Data from the
Centre for Monitoring Indian Economy (CMIE) showed that the number of
employees, both salaried and non-salaried, fell from 398.14 million in March to
390.79 million in April, in the third straight month of falling jobs. In January, the
number of people employed in India was 400.7 million, CMIE data showed. The job
losses come in a month of exploding covid cases, leading to business and mobility
curbs across many parts of the country.
April also saw a fall in the employment rate and labour force participation rate, and a
sharp increase in the number of people who are unemployed, yet not actively looking
for employment—, which economists and experts attribute to the closure of economic
activity and a lack of appetite in the jobs market.
“Unlike in March, the mass impact of the second wave was felt in April. While in
2020 there was a national lockdown, this time it was not a national one. The states and
regions took charge and imposed partial or full curbs. In practice, it shrank economic
activities, and instilled fear, which is real due to the infection spread. The first place
where you will see the impact is the labour market," said Arup Mitra, a professor of
economics at the Institute of Economic Growth, Delhi University.
The fall in the number of people employed is massive and it encompasses regular
salaried workers, casual workers and self-employed. There are three problems now in
the labour market—fall in the number of employed people, fall in labour force
participation and the rise in people unemployed yet not looking for jobs. It’s a critical
situation," explained Mitra.
According to CMIE, the employment rate fell from 37.56% in March to 36.79% in
April, hitting a four-month low. The monthly data also showed that the number of
people who were unemployed yet not actively looking for jobs has increased from
15.99 million in March to 19.43 million in April. “The increasing number of
unemployed people not actively looking for jobs suggests people have withdrawn
from the labour market; one, the infection has now spread to rural India; and, two, due
to closures, there are not enough jobs available. Look at formal sectors like retail,
hospitality, tourism and travel industries, and look at informal and semi-formal
segments workers who were in household jobs, office support systems, etc. They have
gone down significantly in April," he added.
Mitra said the unemployment rate is just one aspect of the larger job market, and it
must have increased in both national, urban and rural markets. According to CMIE
data, national unemployment rate in April climbed to 7.97% as against 6.5% in March
and 6.89% in February, and urban unemployment increased to 9.78% as against
7.27% in March.
“The demand in the market has come down, reverse migration has picked up; but due
to the availability of transport like road and rail, it was not that visible like last year.
The next two-three months will be crucial and the job market stability will depend on
how well we manage the crisis. But the good part is salaried jobs in urban India are
not getting impacted like last year as businesses have developed resilience and they
had already reduced headcount significantly in 2020 and a further cut in human
resource will impact their operations and revenue," said K.R. Shyam Sundar, a labour
economist.

Business optimism declines moderately in

April: Poll
Verdict has been conducting a poll to study the trends in business optimism
during COVID-19 as reflected by the views of companies on their future
growth prospects amid the pandemic.

Fresh COVID-19 waves across the world have dampened the growth
prospects of the global economy.

Verdict has been conducting a poll to study the trends in business optimism during
COVID-19 as reflected by the views of companies on their future growth prospects amid
the pandemic.
Analysis of the poll responses recorded in April shows that optimism regarding future
growth prospects dipped marginally to 60% from 63% in March.

While the percentage of respondents who were optimistic increased from 21% in March
to 23% in April 2021, the very optimistic percentage remained unchanged at 37%.

The respondents who were pessimistic increased by one percentage point to 10% in
April, compared to 9% in March, while those who were very pessimistic decreased to
14% in April 2021 from 20% in March.

Further, the percentage of respondents who were neutral (neither optimistic nor
pessimistic) doubled in April to 16%, against 8% in March reflecting increased
uncertainty.

The analysis is based on 1,375 responses received from the readers of Verdict network
sites between 01 April and 30 April 2021.

Heightens Risks for Indian Banks

Fitch Ratings-Mumbai-09 April 2021: India's second wave of Covid-19 infections poses
increased risks for India's fragile economic recovery and its banks, says Fitch Ratings.
Fitch already expects a moderately worse environment for the Indian banking sector in
2021, but headwinds would intensify should rising infections and follow-up measures to
contain the virus further affect business and economic activity. India's active Covid-19
infections have been increasing at a rapid pace; new infections exceeded 100,000 a
day in early April 2021, against 9,300 in mid-February 2021.

Fitch forecasts India's real GDP growth at 12.8% for the financial year ending March
2022 (FY22). This incorporates expectations of a slowdown in 2Q21 due to the flareup
in new coronavirus cases but the rising pace of infections poses renewed risks to the
forecast. Over 80% of the new infections are in six prominent states, which combined
account for roughly 45% of total banking sector loans. Any further disruption in
economic activity in these states would pose a setback for fragile business sentiment,
even though a stringent pan-India lockdown like the one in 2020 is unlikely.

The operating environment for banks will most likely remain challenging against this
backdrop. This second wave could dent the sluggish recovery in consumer and
corporate confidence, and further suppress banks' prospects for new business (9MFY21
credit growth: +4.5% as per Fitch's estimate). There are also asset quality concerns
since banks' financial results are yet to fully factor in the first wave's impact and the
stringent 2020 lockdown due to the forbearances in place. We consider the micro, small
and medium enterprises (MSME) and retail loans to be most at risk. Retail loans have
been performing better than our expectations but might see increased stress if renewed
restrictions impinge further on individual incomes and savings. MSMEs, however,
benefited from state-guaranteed refinancing schemes that prevented stressed
exposures from souring.

Private banks are more exposed to retail but also have much better earnings capacity
(average pre-provision operating profit (PPOP): 4.85% of loans 9MFY21), contingency
reserves (1.2% of loans) and core capitalization (CET1 ratio: 15.9%) to withstand stress
on their portfolios. In contrast, state-owned banks remain more vulnerable as their
prevailing weak asset quality and greater participation in relief measures are not
commensurate with their limited loss-absorption buffers (average PPOP: 3.0%;
contingency reserves: 0.5%; CET1 ratio: 9.8%). The extension of the MSME refinancing
scheme until 30 June 2021 will alleviate short-term pain, but potentially add to the
sector's exposure to stressed MSMEs, which was around 8.5% of loans (9MFY21) as
per Fitch's estimate.

Nevertheless, we believe the second wave could have a more modest impact than the
initial wave on our assessment of the operating environment in India, based on global
examples of residents and economies adjusting their activities - including much less
stringent and more localized restrictions than last year. The government's more
accommodative fiscal stance may also mitigate some short-term growth pressures.
However, inoculating India's large population in a fast and effective way will be
important to avoid repeated disruptions.

Fitch lowered the operating environment score for Indian banks to 'bb' in March 2020,
with a negative outlook. Downside risk to Indian banks' Viability Ratings - particularly
those in the 'bb' category - would rise if Fitch assesses that operating environment risks
have increased enough to warrant a lower score. However, the banks' support-driven
Issuer Default Ratings are unlikely to change unless we believe that the state's ability or
propensity to support the banks has changed. Fitch believes that a speedy economic
recovery is critical for the sector to rebound, even though we expect a challenging
landscape for Indian banks in 2021.

Indian Economy: The policy support imperative

Fiscal 2021 has been a challenging year for the Indian economy, which was already
experiencing a slowdown before the pandemic. Though there has been some pick-up in
recent months, recovery is weak and uneven. The county's gross domestic product
(GDP) is expected to contract 8% by end-fiscal. At the same time, monetary policy has
begun normalizing and some tightness in domestic financial conditions is inevitable.

Against this backdrop, policy support remains critical, apart from action in the external
environment. This fiscal, policy response to the pandemic has been more on damage
control and providing support to the economy. In fiscal 2022, though, the government is
expected to normalize some of the extraordinary or unconventional policy moves, while
trying to ensure smooth revival in growth. Some of its biggest challenges ahead will be:
broad-basing growth to services and labor-intensive manufacturing sectors and
ensuring financial conditions stay supportive.

CRISIL forecasts India's GDP growth to rebound to 11% in fiscal 2022. In reality, though
the economy will end up only 2% above the fiscal 2020 level, it will be a sharp 10%
lower than its trend level. Fiscal 2022 is also seen emerging as a story of two halves.
The first half will be characterized by a base-effect-driven recovery amid the challenge
associated with the resurgence in Covid-19 infections. However, the second half should
see a more broad-based growth, as vaccine rollout and herd immunity support sectors
that are lagging. These include most of the services sectors, especially contact-based
travel, tourism and entertainment. In addition, stronger global growth should be
supportive for India's exports, to some extent.
We expect the Reserve Bank of India (RBI) to maintain status quo on interest rates in
the upcoming monetary policy and continuation of its accommodative stance. GDP
growth would average 6.3% between fiscals 2023 and 2025. This is higher than the
5.8% average in the three fiscals prior but lower than the 6.7% average growth seen in
the decade preceding the pandemic. Even with that, the economy is expected to face a
permanent GDP loss of ~11% relative to the pre-Covid-19 trend in the next three fiscals.
Still, India will continue to grow faster than the world as a whole. Factors that support
this are: a stretched fiscal deficit glide path and expectation that additional fiscal space
– estimated at Rs 20-25 lakh crore over the next five years – will be used for capex;
promising set of reforms that have the potential to create a platform for growth in the
medium term; deleveraging by corporates over the past few years improving the
appetite for investment; and more support from global GDP and trade growth.
Wall Street brokerage Goldman Sachs has lowered its estimate for India's economic
growth to 11.1 per cent in fiscal year to March 31, 2022, as a number of cities and
states announced lockdowns of varying intensities to check spread of coronavirus
infections. India is suffering the world's worst outbreak of COVID-19 cases, with deaths
crossing 2.22 lakh and new cases above 3.5 lakh daily. This has led to demand for
imposition of nationwide strict lockdowns to stem the spread of the virus - a move.
Retail inflation for farm, rural workers eases marginally in April

Retail inflation for farm workers and rural labourers in April eased marginally to 2.66 per
cent and 2.94 per cent, respectively, mainly due to lower prices of certain food items.
"Point-to-point rate of inflation based on the CPI-AL (Consumer Price Index for
Agricultural Labourers) and CPI-RL (Consumer Price Index for Rural Labourers)
decreased to 2.66 per cent and 2.94 per cent in April 2021, from 2.78 percent and 2.96
per cent, respectively, in March, 2021," the labour ministry said in a in a statement.
Food inflation based on CPI-AL and CPI-RL stood at 1.24 per cent and 1.54 per cent in
April 2021, respectively, it added. The change in the index varied from state to state.

In the case of agricultural labourers, it recorded an increase in the range of 1-17 points
in 16 states and a decrease of 1-4 points in four states. Tamil Nadu, with 1,249 points,
topped the index; whereas Himachal Pradesh, with 813 points, stood at the bottom. In
the case of rural labourers, it recorded a rise in the range of 1-18 points in 17 states and
a decrease of 1-4 points in three states. Tamil Nadu, with 1,233 points, topped the index
table; whereas Bihar, with 851 points, stood at the bottom.

Among the states, the highest increase in CPI-AL and CPI-RL was experienced by
West Bengal with 17 points and 18 points, respectively. It was mainly due to a rise in
the prices of rice, mustard oil, firewood, kerosene oil, vegetables and fruits. On the
contrary, Andhra Pradesh experienced the highest decrease in the CPI-AL. In the CPI-
RL, Andhra Pradesh and Tripura (-four points each) saw the most decrease. It was
mainly due to fall in the prices of of rice, onion, tamarind, saree cotton mill, vegetables
and fruits, it said.

The All-India CPI-AL and CPI-RL for April 2021 rose 6 points each to stand at 1,041 and
1,049 points, respectively. The two indices were at 1,035 points (CPI-AL) and 1,043
(CPI-RL) in March 2021.

The major contribution towards the rise in the general index of agricultural labourers and
rural labourers came from food, with an increase of 3.97 points and 3.74 points,
respectively. It was mainly due rise in prices of rice, jowar, fish fresh, vegetables and
fruits.
Labour Minister Santosh Gangwar said in the statement, "The increase in CPI-AL and
RL will have a positive impact on the wages of millions of workers in the rural sector."

Labour Bureau Director General D P S Negi said said, "The increase in the general
index of agricultural labourers and rural labourers is mainly on account of an increase in
the prices of rice, wheat-atta, maize, jowar, ragi, mustard oil, me

Credit Suisse cuts India's nominal growth forecast to 13-14 per cent
Citing the impact of the second wave of the pandemic over the economy and consumer
sentiment, Swiss brokerage Credit Suisse has lowered its nominal GDP growth forecast
by 150-300 bps to 13-14 per cent, but expects a stronger recovery in the second half as
it sees the lockdowns having limited impact on tax collections. Last month, Neelkanth
Mishra, the co-head of equity strategy for Credit Suisse Asia Pacific, and India equity
strategist, had told that he expected the real GDP to fall to 8.5-9. per cent in FY22 due
to the more severe pandemic attack.

The virus case load has crossed the 25-million mark, death toll from the same is nearing
2.9 lakh mark, which is one of the highest in the world as the test positivity rate has
been around 15 per cent for long.

"Our macro strategy team expects the overall impact on the pandemic restrictions on
GDP to be about 150 bps in base case scenario. Even if we assume a 300 bps impact if
statewide restrictions prolonged, nominal GDP growth in FY22 can still be around 13-14
per cent," Jitendra Gohil and Premal Kamdar, equity analysts at Credit Suisse Wealth
Management India said in a note on Thursday.

Their optimism is based mostly on limited impact on tax collection and other revenue
avenues of government, driven by good recovery in H2, albeit lower than what had
anticipated before the second wave, and and pent-up demand.
Recovery will be supported by pent-up demand, albeit lower than in the case of the first
wave, and the rub-off impact of global growth as the developed market could see faster
growth supported by vaccination drive, they said.
Though the localized lockdown are going to hurt the easy movement of goods, and
supply chain bottlenecks will delay recovery in the manufacturing sector, we see pent-
up demand supporting growth from the second half. However, the fact that the virus is
now spreading in the rural areas is a concern. Another positive factor is the good
monsoon forecast and, if this materializes, this will the third consecutive good monsoon
season. This bodes well for the agriculture economy, and will help revive rural demand
faster, they said. “Overall, we expect good recovery in the second half of the financial
year, albeit lower than what we had anticipated before the second wave," they said,
adding recovery will be supported by pent-up demand albeit lower than in the first wave,
and the rub-off impact of global growth as developed markets may see faster growth
following mass vaccination.
They also believe the impact on tax collections could be limited given the improving
compliance and the positive impact of higher inflation on overall tax collections. Given
that the MSCI premium of domestic equities is down to only 5 per cent now, from the
historical average of 8 per cent, they are positive on the market and therefore do not
see much sharper cuts in earnings forecast as well.
The domestic equities showed resilience despite the second wave and outperformed
the MSCI ex-Asia Japan since April by 7.6 per cent in dollar terms, which is visible from
foreign investor’s reluctance to dump domestic equities. FPIs have sold only USD 2.3
billion since April but this outflow is modest against USD 35.1 billion of net inflows in
FY21, says the report, and is pointed out that their recent selling was partially absorbed
by a pick-up in buying by domestic mutual funds and resilient retail flows which doubled
to USD 736 million in April from USD 339 million in March.
Given all these, we remain positive on equities with a cyclical bias and continue to
prefer mid-cap to large-caps, they said. The domestic equity indices were the best
performers among major indices in FY21 with the Sensex gaining close to 60 per cent;
while for the past 30 days, it gained 1.5 per cent and for the past 90 days lost 4.1 per
cent. Similarly, the Nifty gained over 64 per cent in the past 12 months, gained 2.1 per
cent in the past 30 days, and lost 1.9 per cent in the past 90 days.
As against this, MSCI AC world gained rallied 45.5 per cent in the past 12 months and
lost 2.8 per cent in 30 days and lost 9.2 per cent in the last 90 days. The same for S&P
500 stood at 45.4 per cent, -0.5 per cent, and -5.9 per cent; for Euro Stoxx 50 it was
44.6 per cent, -0.6 per cent and 8.3 per cent; MSCI EM at 45.5 per cent, -2.8 per cent
and -9.2 per cent; MSCI Asia ex-Japan at 42.3 per cent, -3.8 per cent and -11.3 per
cent; MSCI China 30 per cent, -4 per cent and -18.8 per cent; and Nikkei 225 gained
38.9 per cent and lost -6.3 per cent for the past 30 days and -8.1 per cent in the past 90
days, concludes the report.