How India's economy is recovering from COVID-19

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India entered Unlock 4.0 from September 1 further relaxing restrictions on economic and social activity across the country. As we approach six months since the lockdown was imposed, Kanvic takes stock of the key leading indicators on where India stands on lives and livelihoods.

Surging infections - Shifting boundaries 

Average new infections have been surging in India, rising from a daily average of less than 10,000 after the first relaxation of lockdown in early June to over 80,000 today. Furthermore, research shows that if states were to increase their testing capacity, daily cases could increase by 50,000 over current levels, indicating that the upward trajectory could continue for some time.

Since the relaxation of lockdown the virus has extended its reach into more parts of the country.

The share of the top 15 districts in new cases has steadily decreased from 76% in April to 25% by the end of August. There has also been a marked shift from urban to rural areas as the virus has penetrated deeper into Bharat. Among the 50 worst affected districts in August more than half (55%) are rural, up from only a quarter (24%) in June.

It ain't over yet: virus resurgent in previous hotspots

Much was made of the flattening curve in previous hotspots like Delhi and Mumbai however, the virus has made a comeback in recent weeks. The combined share of cases for Delhi, Maharashtra, and Assam increased to 32% in the last week of August after remaining stable at around 24% since mid-July.

From negativity to positivity

While the rising case count may present a negative picture on the more optimistic side the falling positivity rate of tests is a welcome sign. Having reached a peak of 13% in July the test positivity rate has declined steadily to 7% by the end of August. However, this is still above the 5% threshold used by the WHO to suggest the virus is coming under control.

More vulnerable areas may take longer to recover

As the pandemic moves from areas with relatively better healthcare infrastructure to more vulnerable states and districts it may take longer to bring under control, potentially prolonging the economic recovery in those areas. Our analysis shows that those states rated most vulnerable in terms of health and social infrastructure are currently the worst affected in terms of active cases.

Local lockdowns, national impact

While India may have exited national lockdown, local lockdowns are rising again with a chilling effect on economic recovery. The lockdown stringency index peaked at the maximum 100 points on 20th March and slowly reduced to 75 points by mid-July as the central government gradually unlocked. Yet despite the country entering unlock 4.0, the index began to rise again in August due to the implementation of local lockdowns.

Q1 collapse: lives over livelihoods

The first quarter of FY21 saw the largest contraction in India's GDP since records began with the economy shrinking an unprecedented 23.9%. This was the largest drop recorded by any major economy in the first quarter, and compared to falls of 21.7% in the UK, 11.4% in Brazil, and 9.1% in the USA.

Economic recovery: conflicting signals

GST revenue collapsed in April reflecting the sudden drop in demand caused by the national lockdown with total receipts falling by 70% on the previous year. By June GST revenues recovered close to pre-crisis levels but have again fallen back to 10-15% below last year's levels in July and August.

On the supply side, the number of E-way bills issued dropped by almost 50% from March to April as restrictions were imposed on the movement of non-essential goods. These recovered somewhat by June but since then have tapered off at 20% lower than pre-crisis levels.

The industries most affected by the economic fallout of Covid-19 are steel and cement where sales fell by 80% in April compared to +7% and +2% growth last year respectively. The least affected industry has been fertilisers which have seen positive growth since May. 

India's services sector saw the sharpest contraction after lockdown dropping to almost negligible levels of activity in April according to the Purchasing Managers' Index (PMI) before recovering sharply in June. The manufacturing sector saw a less pronounced fall due to its inclusion in essential activities but both the services and manufacturing PMI index remain below 50 in August indicating that a majority of businesses are still seeing a deteriorating situation.

Consumer sentiment: Low today, Better tomorrow

The continued rise in infections has depressed consumer sentiments even as India unlocked. The Current Situation Index (CSI) has fallen precipitously since March and is now 38% below pre-COVID levels. However, the future outlook is somewhat brighter with the Future Situation Index (FSI) averaging only 18% lower than 2019 levels.

Work from home a reality, at least for now

Despite minimal restrictions movement to the office is still 30% down on pre-crisis levels according to the Google mobility index and has seen only a marginal change since mid-June. With significant work-from-home clearly remaining a reality in the near term and perhaps a hybrid working set-up post-COVID. This poses many questions for the future of work, commercial real estate, and retail businesses dependent on the heavy footfall of office workers.

Homebound customers, new expectations

As a result of increased work-from-home and ongoing concerns about the virus, Indians are spending 10-15% more time at home than before the crisis. A larger number of homebound customers will significantly affect the shape of recovery for many sectors like leisure and entertainment while requiring other sectors like retail and consumer goods to adapt their offer and delivery model.

Digital India, Physical Impact

Coronavirus has rapidly accelerated India's shift online as consumers have increasingly migrated to e-commerce and digital payments. Although suffering a sharp fall in April, digital payments have risen strongly to all-time highs in both volume and value terms.

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