Chronic asthmatic & diabetic returns home after successful heart surgery

The recent macroeconomic data indicates that Indian economic activity may soon reach to its pre Covid level. The latest reading on Nomura India Business resumption Index is 93.4, just 6.6% below pre Covid induced lockdown level. The media headlines and official commentary claims it to be a “V” shaped recovery, implying that one year may have been lost, but Indian economy is nearly back to “normal”. There is section of experts which is terming it to be a “K” shaped recovery rather than a “V” shaped one; implying that one part of the economy has raced much ahead while the other continues to slide.

Some noteworthy data includes:

IIP growth is now back to February 2020 level. In December, e-way bill collections rose by 15.9% to 6.42 crore in December 2020, the highest since April 2018. The mobility to work places ticked up in past 8 weeks, as shown by Google mobility index.

Though the exports have faltered in past three months, may be due to fresh mobility restrictions in major European and American economies, but imports have bounced back sharply. The sharp bounce in non-oil and non-gold imports again indicates easing logistic constraints and reviving industrial growth. The trade deficit accordingly widened to 25 months high.

Elsewhere, China has reported positive growth of 2.3% (yoy) for 2020 as a whole. UK, USA and many other European countries have seen fresh surge in cases of infection and have re-imposed some mobility restrictions, hampering the process of economic recovery. In past couple of weeks the US job data has been disappointing.

These data certainly a matter of relief. However, in no way it makes me comfortable. I know from my travels and interaction with people that for a significantly large section of population, the normalization will take years, if not decades, of “high” economic growth. Besides, the amount of stimulus that has taken to bring the economy back to “pre Covid” level may not be available to take it back to pre global financial crisis (GFC) level; exatly we want to be.

For now, Indian economy is like a middle aged person suffering from chronic asthma and diabetes, who has just returned home after a successful open heart surgery.

Chart for the day