Indian economy claws back some lost ground

by Manasi Swamy

The unlock process that began in June 2020 helped the Indian economy regain three of its lost years. India’s real gross domestic product (GDP) measured Rs.33.1 trillion during July-September 2020 quarter. This was equivalent to the GDP recorded in the December 2017 quarter. In the June 2020 quarter, the economy had regressed back to its six-year ago quarterly size of Rs.26.9 trillion following imposition of the strictest Covid-19 lockdown in the world. Within a single quarter, the economy regained Rs.6.2 trillion of GDP it lost amid the lockdown.

GDP in the September 2020 quarter was 7.5 per cent lower than a year-ago. This marks the second consecutive quarter of year-on-year contraction in GDP, after the 23.9 per cent slump suffered in the June 2020 quarter, which means that India has technically slipped into a recession. This recession was inevitable given the intensity of the jolt the economy received in terms of the lockdown. Also, many restrictions on functioning of the economy were lifted only gradually during the unlock process, while some remained in place even by the end of September 2020. Given these constraints, the sequential recovery the Indian economy has shown is remarkable.

The improvement in GDP in the September 2020 quarter over the June 2020 quarter was almost equally contributed by private consumption and investment demand. Private consumption expenditure increased by Rs.3.3 trillion to Rs.18 trillion from a near six-year low of Rs.14.6 trillion it had dropped to in the June 2020 quarter. Consumption demand was hit in the June 2020 quarter because of four reasons rise in unemployment, fall in household incomes, reduced opportunities for spending due to the lockdown and weakening of consumer confidence due to uncertainty regarding the future. The intensity of all four reduced during the September 2020 quarter .

White collared professionals started seeing an improvement in their incomes. Listed companies’ wage bill grew by 3.5 per cent and the y-o-y fall in income tax collections by the Centre got mitigated to 10.1 per cent in the September 2020 quarter from 35.9 per cent in the June 2020 quarter. This improvement, albeit in nominal terms, shows at least a partial return of the purchasing power in hands of middle and higher middle income houses. Retailers of non-essential goods and services, street hawkers and people employed in construction and private transport value chain returned to jobs as restrictions eased and the economy started opening up. Salaries and pensions of government and defence employees were anyways unaffected post lockdown. Besides, income of farmers and agricultural labourers also remained unscathed by Covid-19 lockdown. As avenues for spending re-opened with relaxations in the restrictions imposed, pent-up demand particularly from the ‘haves’ unleashed, more so at the fag-end of the September 2020 quarter as festive season approached.

Investment demand, depicted by gross fixed capital formation (GFCF), increased by Rs.3.6 trillion to Rs.9.6 trillion in the September 2020 quarter, after slumping to a 43-quarter low of Rs.6 trillion during April-June 2020. Despite this, the September 2020 quarter GFCF was only at par with the GFCF recorded in the June 2017 quarter i.e. three-and-a-half years back. The cash-strapped Central Government axed its capital expenditure y-o-y by 37.7 per cent in nominal terms in the September 2020 quarter. State governments also cut their development spending. Most corporates decided to put their future expansion plans on the backburner after the announcement of the lockdown. Consequently, fresh industrial & infrastructural project announcements captured by CMIE’s CapEx database dropped to a 16-year low of Rs.759 billion in the September 2020 quarter. Net fixed assets of 3,035 listed non-finance companies increased y-o-y by six per cent as of end-September 2020. This suggests that post lockdown, corporates probably resumed work only on the projects that were in the last leg of completion.

The government did not make any direct contribution to the September 2020 quarter GDP improvement. Government final consumption expenditure (GFCE), in fact, dropped to Rs.3.6 trillion, its lowest in the last six quarters.

India’s exports were quick to recover from the pandemic in comparison to the domestic demand. During July-September 2020, they not only rose by Rs.1.2 trillion to Rs.6.9 trillion in real terms over the June 2020 quarter, but also nearly recovered to their pre-Covid level of Rs.7.03 trillion. Exports improved as the unlock process began in most countries around the world by June 2020. Merchandise exports to China increased exceptionally during the pandemic. India’s imports too increased in real terms by Rs.1.5 trillion to Rs.6.5 trillion in the September 2020 quarter from the June 2020 quarter, as the domestic demand for goods and services improved. These, however, were still lower than their levels achieved in the last four years. Consequently, trade balance remained in surplus and amounted to 1.4 per cent of GDP in the September 2020 quarter. This was the second and also the second highest trade surplus recorded in the last 15 years.

While the Indian economy has bounced back strongly in the September 2020 quarter from its June 2020 quarter slump, the road ahead is challenging. Both, consumption and investment demand still remain significantly lower than their year-ago levels. And, future recovery remains vulnerable to resurgence in Covid-19 cases and sustainability of the pick-up in consumption demand which contains an element of pent-up release and festive celebrations.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.2 -0.1
Consumer Sentiments Index
Base September-December 2015
53.9 +0.3
Consumer Expectations Index
Base September-December 2015
55.7 +0.5
Current Economic Conditions Index
Base September-December 2015
51.1 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Mar 20 Jun 20 Sep 20 Dec 20
New projects 3.80 0.83 1.05 0.86
Completed projects 1.77 0.25 0.72 0.58
Stalled projects 0.73 0.11 0.08 0.30
Revived projects 0.42 0.68 0.36 0.08
Implementation stalled projects 10.18 0.09 0.07 0.12
Updated on: 22 Jan 2021 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 20 Jun 20 Sep 20 Dec 20
All listed Companies
 Income -5.0 -27.6 -6.2 9.0
 Expenses -1.9 -27.9 -10.1 5.8
 Net profit -48.9 -40.3 45.2 35.8
 PAT margin (%) 2.3 5.3 8.3 19.0
 Count of Cos. 4,357 4,351 4,316 218
Non-financial Companies
 Income -9.0 -37.4 -10.4 11.3
 Expenses -4.9 -37.6 -14.0 7.0
 Net profit -50.1 -55.8 29.9 50.9
 PAT margin (%) 3.2 4.5 8.0 19.1
 Net fixed assets 13.3 5.9
 Current assets 3.6 0.8
 Current liabilities 6.2 -2.8
 Borrowings 15.8 8.1
 Reserves & surplus 1.3 4.5
 Count of Cos. 3,241 3,239 3,219 153
Numbers are net of P&E
Updated on: 22 Jan 2021 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.5 0.3
 Expenses 9.9 13.8 0.5
 Net profit -41.4 18.5 -11.8
 PAT margin (%) 1.9 2.2 3.8
 Assets 10.9 9.5 9.3
 Net worth 7.4 8.5 4.7
 RONW (%) 3.4 4.0 5.5
 Count of Cos. 29,431 28,732 9,883
Non-financial Companies
 Income 8.6 14.1 -2.6
 Expenses 8.8 14.3 -1.8
 Net profit -10.1 22.6 -24.0
 PAT margin (%) 2.7 3.0 3.9
 Net fixed assets 7.2 5.5 12.4
 Net worth 6.0 8.2 1.7
 RONW (%) 5.6 6.6 6.8
 Debt / Equity (times) 1.0 1.0 0.8
 Interest cover (times) 2.1 2.3 2.6
 Net working capital cycle (days) 77 70 59
 Count of Cos. 23,809 23,199 7,312
Numbers are net of P&E
Updated on: 20 Jan 2021 2:19PM