India's economic activity almost at pre-lockdown levels but Covid looms: Nomura

New Delhi: Economic activity accelerated further in the week ended September 13, returning almost to pre-lockdown levels, a private tracker released on Monday showed. The Nomura India Business Resumption Index, which monitors economic activity normalisation, rose to 81.6 from 79 in the week ended September 6.

Separately, S&P Global Ratings said India’s economy will likely contract 9% in FY21 from a previous estimate of -5%. Still, that was less steep than cuts forecast by its peers following the June quarter’s 23.9% contraction. Both Nomura and S&P sounded warnings about the threat posed to the economy by rising Covid-19 infections. Meanwhile, consumer inflation dipped marginally but was still outside the upper limit of the target range.

“Business resumption defies pandemic and accelerates further in mid-September,” Nomura Global Markets Research said in its weekly report.

The “tracker of the pace of economic activity normalisation has been picking up through August and raced ahead to a post-lockdown high” and is just 18 percentage points below the pre-pandemic normal, the report said. The index was at 82.9 on March 22, just before the lockdown that started March 25. It touched a low of 44.7 on April 26.

Concern Over Rising Covid Cases

The Nomura tracker had briefly plateaued in June-July, raising concerns that recovery was faltering. “Increasing retail and recreation mobility, a higher driving mobility index and higher power demand are primarily responsible,” said Nomura Global Markets Research.

It expressed concern over the surge in Covid-19 infections.

“We believe the durability of the recovery remains in question, as rising cases may lead to the re-imposition of localised lockdowns or create more risk-averse consumers, despite current levels of lockdown fatigue,” Nomura said.

India’s Covid-19 count stood at 4.85 million on Monday, No. 2 in the world behind the US, with nearly 1 million active cases and about 80,000 fatalities. The high infection count has kept people from returning to offices. “Workplace mobility, however, was unchanged at around 30pp (percentage points) below normal, possibly reflecting a more durable shift towards working from home,” the report said.

The Nomura index takes into account Google mobility indices, driving mobility from Apple, power demand and the labour force participation rate.

The unemployment rate improved to 7.0% from 7.3% in the previous week but the labour participation rate deteriorated to 40.7% from 41.2%. Nomura cut its India growth forecast for FY21 to 10.8% contraction from a 6.1% fall estimated earlier, following June quarter GDP numbers.