The June recovery and beyond

by Mahesh Vyas

Plenty of fast frequency data from official sources confirm the partial recovery of the economy in June that we had seen coming in the weekly estimates of India’s labour markets. It was not just the MGNREGS spending by the government or the southwest monsoon and kharif sowing data that we had used to explain the recovery of June in rural India that confirms the dramatic recovery. It is also evident by now in data on consumption of energy sources and in the movement of industrial goods on railways and across major ports.

Electricity generation from utilities that had shrunk by 25.8 per cent y-o-y in April 2020, reduced its contraction to 17.6 per cent in May and then to 11.9 per cent in June. In absolute terms, power generation from utilities in June 2020 was around the same level that it was in the last quarter of 2019. The worst seems to be over for power generation. This increased power generation is unlikely to have fuelled only by rural India. It is likely to have met the growing demand from urban India as well.

Consumption of petroleum products crossed 16 million tonnes in June 2020. This was higher than it was in March, April and May 2020. Sure, it is still 7.8 per cent below its year-ago level. But, that is much better than the 46 and 23 per cent fall seen in April and May. Again, this consumption demand is likely to have originated from both rural and urban regions.

Revenue earning freight traffic on Indian railways has bounced back similarly. Year-on-year comparisons show lower contractions - from 35 per cent in April to 21 per cent in May to less than 8 per cent in June. Freight movement is not an indication of rural demand alone. Cement and steel movement bounced back handsomely from very sharp falls in April and May.

Even motor vehicle registrations jumped up from 207,442 in May 2020 to 989,653 in June 2020. It was 377,074 in April. And, it was 1.7 million in June 2019. There is a long way to go before we catch up with the norm but, the worst seems to be behind us.

This is the recovery that labour statistics from CMIE foretold in mid-June 2020.

Last week we pointed out that some fatigue was setting into the recovery process. In the last week of June and the first week of July, the labour participation rate had fallen and the unemployment rate had risen.

The third week shows less fatigue but, there still seems to be some resistance to making further gains. The labour participation rate continued to fall. The week ended July 12 was the third consecutive week to record a fall in the rate. This is debilitating. From an economic growth point of view it is important that the labour participation rate does not fall. There is still a lot of ground to cover. The rate had touched a recent peak of 42 per cent in the week ended June 21. Since then, the rate fell during each subsequent week and it was down to 40.4 per cent as of the week ended July 12. The rate had averaged at 42.7 per cent in 2019-20.

The fall in the labour participation rate was compensated by a sharp fall in the unemployment rate in the week ended July 12, to 7.4 per cent. This enabled a small recovery in the employment rate. It increased from 36.9 per cent in the week ended July 5 to 37.4 per cent in the week ended July 12. This still significantly lower than its level during the last two weeks of June.

The main stress is in urban India. Labour participation rate in the towns fell to 37 per cent by the week ended July 12. With this, all the gains made in improving the labour participation rate in June in urban India were nullified. But, the urban unemployment rate dropped significantly to 9.9 per cent. This helped improve the employment rate marginally - from 33.2 per cent in the week ended July 5 to 33.3 per cent in the week ended July 12. That is too small a gain to repose much faith in.

Rural India continues to deliver a much better performance. Rural labour participation rate increased, albeit by a whisker, from 42 per cent to 42.1 per cent in the first two weeks of July. The unemployment rate also declined - from 7.8 per cent to 6.3 per cent. As a result, the employment rate rose from 38.7 per cent to 39.4 per cent. At this level it is still shy of its pre-lockdown period. But, the overall recovery has been impressive.

The government continues its aggressive spending on MGNREGS and sowing activities for the kharif crop remain brisk. This has helped keep rural India better employed. It may also keep rural India better employed in the coming months. However, the reluctant recovery of labour markets in urban India is an indication of the limits of the current recovery. The sudden imposition and relaxation of the lockdown in many parts of urban India is making a smooth recovery difficult.

Data of the first two weeks of July suggest that the recovery has stopped progressing beyond its level of the last two weeks of June. It is possible that July may see very little gain in terms of jobs returning. Besides, the lockdown also has its long-term impact. So, there will be a limit to the immediate recovery that we witnessed in June.

Published first in Business Standard Link

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.7 +0.1
Consumer Sentiments Index
Base September-December 2015
44.7 0.0
Consumer Expectations Index
Base September-December 2015
46.9 -0.6
Current Economic Conditions Index
Base September-December 2015
41.2 +1.1
Quarterly CapEx Aggregates
(Rs.trillion) Sep 19 Dec 19 Mar 20 Jun 20
New projects 3.18 5.26 3.73 0.61
Completed projects 0.84 1.65 1.74 0.19
Stalled projects 0.41 0.61 0.77 0.11
Revived projects 0.43 0.83 0.42 0.55
Implementation stalled projects 0.90 0.15 9.55 0.08
Updated on: 09 Aug 2020 3:28PM
Quarterly Financials of Listed Companies
(% change) Sep 19 Dec 19 Mar 20 Jun 20
All listed Companies
 Income -2.3 -1.7 -4.8 -25.2
 Expenses -3.1 -2.2 -1.8 -27.0
 Net profit -1.3 -11.1 -45.0 -16.4
 PAT margin (%) 5.3 5.1 2.6 7.8
 Count of Cos. 4,450 4,422 4,068 815
Non-financial Companies
 Income -6.3 -5.5 -8.9 -35.8
 Expenses -6.7 -6.3 -4.9 -37.2
 Net profit -13.6 -14.1 -46.6 -37.9
 PAT margin (%) 5.8 5.7 3.6 7.0
 Net fixed assets 10.4 13.1
 Current assets 5.0 2.9
 Current liabilities 5.0 4.6
 Borrowings 8.4 14.6
 Reserves & surplus 5.9 2.2
 Count of Cos. 3,339 3,312 3,073 640
Numbers are net of P&E
Updated on: 09 Aug 2020 3:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.2 5.6
 Expenses 9.8 13.4 3.8
 Net profit -40.0 21.8 27.0
 PAT margin (%) 2.0 2.4 6.3
 Assets 10.9 9.3 12.3
 Net worth 7.5 8.5 9.7
 RONW (%) 3.5 4.4 7.4
 Count of Cos. 26,669 25,353 1,255
Non-financial Companies
 Income 8.6 13.7 0.7
 Expenses 8.7 13.8 0.2
 Net profit -8.6 24.3 -2.8
 PAT margin (%) 2.7 3.2 8.5
 Net fixed assets 7.1 5.0 23.4
 Net worth 6.1 8.4 6.0
 RONW (%) 5.7 7.0 11.4
 Debt / Equity (times) 1.0 1.0 0.6
 Interest cover (times) 2.1 2.4 3.9
 Net working capital cycle (days) 77 70 18
 Count of Cos. 21,754 20,625 909
Numbers are net of P&E
Updated on: 05 Aug 2020 5:28PM