Mega lockdown puts India’s animal spirits to sleep in April


By Anirban Nag

India’s economy was pushed into a state of dormancy in April as the world’s strictest stay-at-home measures to contain the coronavirus took its toll.

Although a cross-section of high-frequency indicators compiled by Bloomberg News signaled contraction in economic activity, the needle on a dial measuring so-called animal spirits was stuck at the same place as a month ago. That’s because the gauge uses the three-month weighted average to smooth out volatility in single-month readings.


The dashboard signals Asia’s third-largest economy had a dismal start to the new fiscal year from April 1, after what’s been an already disappointing beginning to the calendar year. Government data on economic growth due Friday will probably show expansion slowed in the the January-March quarter to 1.5%, according to a Bloomberg survey as of Wednesday morning. The central bank expects contraction in the current fiscal year.

Here are the details of the dashboard:

Business Activity

India’s main services index crashed last month to 5.4 — the lowest reading in the world, while manufacturing declined to 27.4. These together pushed the composite index to 7.2 from 50.6 in March. A print below 50 suggests contraction.

The numbers offered the first glimpse of the devastating hit to the economy from the coronavirus pandemic and the nationwide shutdown that came into effect in the last week of March. Historical comparisons of the services index with GDP indicate the economy contracted at an annual rate of 15% in April, according to IHS Markit.

Service providers also recorded a sharp drop in operating costs because of the lockdown, as firms witnessed lower running costs. That’s likely to reflect in core inflation — which strips out volatile food and fuel prices — and which the central bank expects to remain subdued due to weak demand in the economy.



Exports declined 60% in April from a year ago to $10.36 billion, as global demand collapsed. Exports of gems and jewelry fell by a whopping 98.7% while textile shipments shrunk 71.6%. Weakness in domestic demand reflected in a sharp contraction in imports.



Consumer Activity
Car sales in India, the world’s fourth-largest automobile market, were near to nothing, companies reported. Manufacturers including Mahindra & Mahindra Ltd., the nation’s biggest SUV maker, and Tata Motors Ltd., the owner of British luxury brand Jaguar Land Rover, had shuttered plants during the month.

As a result of the lockdown, petrol and diesel consumption plunged as did freight traffic. The freeze in activity saw the economy shed about 122 million jobs last month, wiping away incomes as also demand in the consumption-driven economy. Need for bank loans eased, despite overall liquidity conditions showing improvement as the central bank pumped in more funds.

Industrial Activity
Output of infrastructure industries — which contribute 40 percent to the industrial production index — shrank 6.5% in March from a year ago due to fall in production of crude oil, natural gas, refinery products, fertilizer, steel, cement and electricity. As a result, factory output declined 16.7%. Both data are published with a one-month lag.

In a report this week, Deutsche Bank AG’s Chief India Economist Kaushik Das forecast the economy will contract 5.5% in the current fiscal year, with the potential for an 8% shrinkage if the pandemic persists for long.





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