Resilient PMI
Indian manufacturing sector managed to stay resilient. This was despite the raging second wave of COVID-19.
The IHS Markit manufacturing Purchasing Managers Index (PMI) expanded at 50.8 in May. The pace of expansion, yet, reduced considerably from 55.5 in April. A reading above 50 is considered as expansion, while a reading below 50 denotes contraction.
Expansion of manufacturing activities suggests that economic activities managed to stay afloat. The business environment remained much better as compared to last year's lockdown.
This number presents only a half picture. Domestic demand was hit hard during the month due to restrictions. But, manufacturing activities were mostly supported by rising demand from the international market.
Drastic Fall in Fuel Consumption
Petrol and diesel sales in May declined by around 30% as against the same month in 2019. This is largely due to the severe restrictions on individual mobility and industrial activities.
A two-year comparison suggests that all the major state fuel retailers - Indian Oil, HPCL, and BPCL - reported a fall of 28-30% in petrol-diesel consumption.
The fuel consumption data on a two-year CAGR basis suggests below normal level activities in the country. However, fuel consumption has not deteriorated from the levels of last year when the entire country was under strict lockdown.
Moody's Predicts a Quick Rebound
Leading credit rating agency Moody's has predicted a quick recovery in India's economy as various states have eased the restrictions. Moody's has pegged India's GDP to grow at 9.3% for FY22. However, it has lowered the expectations from its early forecast of 13.2% GDP growth under the impact of the second COVID-19 wave.
Moody’s has also noted that India's economy recovered sharply until the second wave derailed the economic prospects again. Going forward, the severity of the pandemic and policy response will be the key to their forecast.
Despite the aggressive growth targets, Moody's has expressed concerns over the deteriorating credit profile of the country. Under the normal circumstances, the government had set the fiscal deficit target of 3.5% for FY21. However, it slipped to 9.3% of GDP from 4.6% in FY19-20 as the government embarked on heavy borrowing to increase its spending.
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