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Economic activity moderated to five-month lows in Jul’21

Expect real GDP growth of 7–8% YoY in 2QFY22

* Our in-house Economic Activity Index (EAI) for India’s real GVA (called EAI-GVA) posted growth of 7.7% YoY in Jul’21 (the lowest in five months), against 10.7% YoY in Jun’21 and a contraction of 5.2% YoY in Jul’20. This was led by broad-based moderation in Jul’21.

* On the contrary, EAI-GDP exhibited better growth of 5.6% YoY in Jul’21, against 2.7% YoY growth in Jun’21, but much weaker v/s Mar–May’21. While investments grew at the lowest level in five months in Jul’21, private consumption grew at a three-month-high pace during the month. Within investments, government capex declined for the second time in the first four months of FY21, while the private sector grew decently on the low base of Jul’20.

* Core revenue spending (excluding interest and subsidies) by the central government, however, declined for the third time in four months. Excluding government consumption, EAI-GVA grew 7.1% YoY in Jul’21, faster than 3.2% YoY in Jun’21, but slower v/s Mar–May’21.

* Most of the indicators that we analyze on a monthly basis to track the progress in economic growth paint a mixed picture for Aug’21. While e-way registrations, toll collections, mobility indices, and power generation have increased at a faster rate, auto registrations, merchandise exports and the Manufacturing PMI have weakened in the recently concluded month. The fear of a potential third wave seems to be restricting economic activity at this stage.

* Overall, our in-house estimates suggest some moderation in EAI-GVA growth in Jul’21, largely due to weaker fiscal spending, while there was decent growth in private spending (consumption and investments). Accordingly, we expect real GVA growth of 7–8% YoY in 2QFY22 v/s 20.1% YoY growth in 1QFY22.

* EAI-GVA grew slower at 7.7% YoY in Jul’21…: Preliminary estimates indicate India’s EAI for GVA posted growth of 7.7% YoY in Jul’21 (the lowest in five months), against 10.7% YoY in Jun’21 and a contraction of 5.2% YoY in Jul’20. This was led by broad-based moderation in Jul’21 (Exhibit 1, 2).

* …while EAI-GDP grew faster at 5.6% YoY in Jul’21: EAI-GDP, on the other hand, exhibited better growth of 5.6% YoY in Jul’21, against 2.7% YoY growth in Jun’21, but much weaker v/s Mar–May’21. While private consumption grew at a three-month-high pace, investments grew at a five-month low and government consumption declined for the third time in four months (Exhibits 3, 4).

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