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Has the Indian economy managed to put the worst of the Covid-19 pandemic-induced devastation behind it? There are some early indicators which suggest that this could possibly be the case. For the first time in the current financial year that started April 1, monthly GST collections have shown a growth on a year-on-year basis.

After falling for six months, GST collections in September rose to Rs 95,480 crore as against Rs 91,916 crore in September 2019. This is a growth of four per cent over the corresponding period a year ago and 10.4 per cent higher than the Rs 86,449-crore collected in August 2020. Since GST is paid when goods change hands or services are rendered, this is a clear marker of economic activity picking up. Merchandise exports also grew over five per cent in September 2020, compared to a year ago.

There are some other tangential indicators which support this premise as well. Automobile sales showed an overall 13 per cent increase in September, with market leader Maruti Suzuki logging a whopping 30.8 per cent increase in dispatches to dealers compared to the same month last year. The major two-wheeler manufacturers also logged double digit growth in September, while tractor sales, buoyed by a second successive above normal monsoon, have also shown strong growth, with market leader Mahindra logging an 18 per cent increase in September.

Petrol sales grew two per cent year-on-year in September, the first time increase since the lockdown began in March. Diesel sales, a better indicator of economic activity, continue to be negative on a y-o-y basis, although in September, there was a 22 per cent increase over August. Finance Secretary Ajay Bhushan Pandey also points to the 5.74 crore e-waybills generated in September (an e-waybill has to be generated whenever goods worth more than Rs 50,000 have to be moved within or between states) as a sign of a return to 'normalcy'.

While these indicators do point to a resurgence in economic activity, it would be unwise to assume that the worst is past us and it is back to business as usual. Take the GST numbers. September marks the end of the second quarter of the financial year and most listed entities would have striven to improve the numbers by pumping the pipeline full. It must also be noted that across most of the country, it was around this time that lockdown restrictions were eased and the supply chain had to be restocked.

Automobile sales numbers are also not reflective of actual sentiment, as these numbers are for dispatches to dealerships and not retail sales. The auto sector is hoping that the upcoming festival season, powered by a good monsoon, will help liquidate these stocks. It must also be remembered that 2019-20 was a period of acute contraction for automobile sales, with sales in August 2019 more than 40 per cent lower than August 2018. So the base effect shows a bigger bounceback than is real.

Overall, too, comparisons to the same month a year ago also do not reflect the trend, since the economy had started slowing down sharply last year and GDP growth had plunged to four per cent for the fiscal year. The first quarter GDP numbers, which shrank by over 25 per cent, point to a strong recessionary grip on the economy, which cannot be shaken off in just one month.

The economy continues to be in dire straits. While the informal sector was devastated by the stringent lockdown, the formal sector has been equally badly hit. According to CMIE data, new projects announced during the quarter ended September 2020 amounted to just Rs 59,000 crore compared to the over Rs 5.5 lakh crore new projects announced in Sep-Dec 2019. Non-food bank credit growth decelerated to six per cent in August 2020, from 9.8 per cent in August 2019, while credit growth to industry slowed to a mere 0.5 per cent, compared to 3.9 per cent a year ago. Unemployment continues to remain high, at 6.7 per cent in September, while the CMIE estimates that more than 6.5 million middle-class white-collar jobs have been lost since the start of the pandemic.

The government’s headline managers have already dubbed the first early signs as an indication that all is well. It would be a fatal error of judgment if our policymakers started believing the PR spin. The economy needs urgent stimulus if the lost growth is to be retrieved. With banks unable and unwilling to lend and risk appetite missing among private investors, it is up to the government to kickstart the recovery by upping spending, particularly on infrastructure and development.

Programmes like the MNREGA need to be beefed up and extended to urban areas, to mitigate the job crisis precipitated by the pandemic. The rural sector needs particular attention, to ensure that a bumper harvest from a bountiful monsoon translates into better prices for farmers. The time for rhetoric is over. It is time for immediate action.

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Free Press Journal