Indian economy was well on the road to recovery before new virus wave hit

Economic activity in India picked up speed last month, signaling it was well on the road to recovery before a new wave of coronavirus infections derailed progress.

The needle on a dial measuring so-called animal spirits moved a notch higher for the first time in six months in March, based on the three-month weighted average numbers of eight high-frequency indicators tracked by Bloomberg News.

While last month’s score -- helped by faster exports and improved liquidity -- cements a solid showing in the January to March quarter, fresh activity curbs amid the world’s worst Covid-19 outbreak in India merit a real-time reading of the economy using other indicators.

A basket of of high-frequency, alternative and market indicators pointed to a sharp slump in services activity in the week to April 25, Abhishek Gupta, India economist at Bloomberg Economics, said in a note Wednesday.

Business Activity
Activity in India’s dominant services sector moderated in March after expanding the previous month at its quickest pace in a year. The IHS Markit India Services PMI eased to 54.6 from 55.3, with a reading above 50 signaling growth. A similar survey for the manufacturing sector also showed expansion moderating.

Exports
Exports grew more than 60% from a year ago, engineering goods, with gems and jewelery, drugs and pharmaceuticals, and chemicals leading shipments. Merchandise imports too staged a smart rebound in March, growing by 53.7% from a year ago on the back of an uptick in domestic economic activity.

Consumer Activity
Passenger vehicle sales more than doubled from a year ago, rising to 291,000 units in March, according to SIAM data. Two-wheeler sales were at 1.5 million units, compared with 867,000 last year.

That optimism was, however, was tempered by slowing demand for loans. Bank credit grew 5.6% in March from a year earlier, dropping from 6.6% in February, central bank data showed. Liquidity conditions improved a bit, with the banking system in surplus, despite advance tax outflows in the second half of March.

Industrial Activity
Industrial production contracted 3.6% in February from a year earlier, reflecting a slowdown across most sectors. The only bright spot was consumer durable goods, which recorded surprisingly strong growth, helped by a lower base.

Output at infrastructure industries, which makes up 40% of the industrial production index, also shrank 4.6% in February from a year ago, with a drop in cement output leading the charge. Both data are published with a one-month lag.