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Economic recovery weakens substantially in Feb’21

Real GVA will be weaker-than-expected in 4QFY21E

* Our in-house Economic Activity Index for India’s real gross value added (called EAI-GVA) posted a growth of just 0.5% YoY in Feb’21, the weakest in the past six months as against +4% in Jan’21. The slower growth was largely driven by the non-farm sector, with Industrial activity posting its first fall in six months and the Services sector growing just 0.5% in Feb’21. The Agricultural sector grew 5.1% YoY in Feb’21, the slowest in four months, but reasonably decent.

* EAI-GDP declined 7.8% YoY in Feb’21, the fastest pace in four months v/s a contraction of 5% YoY in Jan’21. This was on account of the first fall in three months in exports and faster contraction in consumption (private as well as fiscal). Excluding fiscal spending, EAI-GDP declined slower at 6.9% YoY in Feb’21. Although investments shrank for the 20th time in the past 21 months, it fell at a slower pace in Feb’21 vis-à-vis Jan’21.

* While economic activity lost momentum in Feb’21, GST receipts for the month (collected in Mar’21) were at a record high of INR1.24t. Early indicators – such as e-way bill, Power generation, toll collection, and Railway freight loading – suggest strong growth in Mar’21. As the favorable base effect kicks in, more caution will be required to analyze macroeconomic data. Since India faces a second COVID-19 wave (with daily confirmed cases now at record highs), more restrictions have been announced (bringing down mobility indices to the lowest since mid Nov’20), which is certain to affect economic activity during 1QFY22E. India’s real GVA in 4QFY21E could be weaker than previously expected. We need to track the spread of COVID-19 and announced restrictions closely to gauge its economic impact in FY22.

* EAI-GVA grew just 0.5% YoY in Feb’21…: Preliminary estimates reveal India’s EAI posted its weakest growth of just 0.5% YoY in the last six months in Feb’21 v/s a growth of 4% YoY each in Dec’20 and Jan’21 (Exhibit 1). The slower growth in Feb’21 was led by a decline in Industrial activity and sharp decoration in the Services sector. The Farm sector growth, on the contrary, moderated to 5% YoY in Feb’21 (Exhibit 2).

* …and EAI-GDP declined at a faster pace: In line with weak EAI-GVA, EAI-GDP contracted at the highest pace in the last four months (7.8% YoY) in Feb’21 v/s a 5% YoY fall in Dec’20 and Jan’21 (Exhibit 3). Faster decline in EAI-GDP was on account of the worst decline in the last four months in consumption (private as well as fiscal) and the first fall in real exports in three months. Investments, however, declined 4.8% YoY, slower than the 6.8% fall in Jan’21 (Exhibit 4).

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