No wonder, the year-on-year growth of the Indian Railways’ freight business entered positive territory in mid-August for the first time since March 25, when a nationwide lockdown was announced by the government to curb the spread of the novel coronavirus. With that, the economy, too, came to a standstill for at least two months.
The traffic on the highways is also back now, although the pace of growth is a tad slower than the railways. The highways are now witnessing a return of over 80% vehicles of pre-Covid period — up from a low 30-40% during peak lockdown.
What does this surge in highway traffic and railway freight movement signal? Does it mean the Indian economy is gathering steam? Or, is this a reflection of pentup demand being released, which could mean the rising graph may plateau soon?
“The recovery has so far been Vshaped, but to be honest, it is unlikely to continue that way. Once the pent-up demands are met, things may start normalising again,” says Vice-Chairman of NITI Aayog Rajiv Kumar, adding that statewide lockdowns are a major disrupter. “You can’t expect one industry to expand its output without having inputs from other states,” he says.
The recovery graph, particularly during the last two months, has been impressive if one goes by the performance of the two key transport sectors. The railway freight business, which contracted by 35% and 21% in April and May, respectively, has bounced back. Between August 1 and 18, for which comparative data is available, the Railways ferried 54.3 million tonnes of goods, up from 50.7 million tonnes during the same period last year, registering a 7% growth. That was also the first fortnight since the lockdown when the freight business grew in absolute terms. The data on passenger segments is not relevant at this juncture, as normal passenger train operations are suspended due to the pandemic, with the government allowing only special trains to run. With 13,000 passenger trains off the track, the Railways has been able to increase the speed of goods trains and introduce time-table freight trains — the latter is considered the single biggest driver to woo new clients.
The Bengaluru railway division — for which ET Magazine reviewed the finances since the lockdown — has seen a 22% growth in loading during the first 25 days of August, earning Rs 7 crore, up 22% compared with the same period last year.
Bright spots have also been noticed in the highway sector. Asheesh Sharma, member in-charge of finance in the National Highways Authority of India (NHAI), explains the upward curve as well as the concerns. “When the lockdown was lifted, initially we had 50-52% traffic on the highways. Now, the daily traffic is over 80% of the pre-Covid level. Some segments have not picked up to a satisfactory level. We are hopeful that after the recent interventions by the Union home ministry on inter-state movement, things will improve soon,” says Sharma, who is also the chairman of Indian Highways Management Company Limited, a private entity that handles electronic tolling and in which NHAI has a 41% stake, the rest of the shares being held by private concessionaires and other financial institutions.
Analysing the toll data, Sharma adds that 60% of the present traffic on the highways comprises commercial vehicles, which is only marginally down from the 62% of pre-Covid period.
Earlier this week, credit rating agency ICRA said in a report that toll collections reached 87% of the pre-Covid level in the second fortnight of July, adding that 90% of commercial vehicles are now back on the road.
L&T IDPL, a subsidiary of Larsen & Toubro with 7,200 lane km of highway projects under its fold, says its toll collections in July reached 85% of its estimate, up from 37% in April and 62% in May, both peak lockdown months. The company’s chief executive officer, Shailesh Pathak, says he can’t release the revenue numbers while agreeing to do an analysis of his company’s tolling data. “For commercial traffic, all categories except manufacturing and construction equipment are back to pre-Covid levels. With the resumption in these two sectors, more traffic may be expected. Given current realities, 1-2% growth may be expected in traffic within the next six months,” he adds.
The rising volume of traffic in highways and railway freight, for which data is available, indicates that companies have been busy ferrying products from factories to distributors. “The problem goes beyond that. We don’t have data on the size of inventory at the distributor and wholesaler level,” says Pronab Sen, former Chief Statistician of India, adding that he suspects large stockpiles are stuck with distributors and are not getting retailed, citing slower demand and disruption by sporadic statewide lockdowns plus weekend shutdowns.
If that’s the case, the economy will take much longer to recuperate.
Union Finance Minister Nirmala Sitharaman on Thursday called Covid-19 an act of God, conceding for the first time that there could be a contraction of the economy in the current fiscal, something which was forecast by several global and domestic rating agencies as well as noted economists in the past few months. Earlier this month, the Reserve Bank of India in a statement said the country’s real GDP growth for 2020-21 will be in the contraction zone.
It is learnt that the government is contemplating to unleash more measures that will effectively show results only in 2021-22. NITI Aayog’s Kumar hints at a possible roadmap. “The economy will likely see a contraction in 2020-21. So, we have to try very hard to ensure that in 2021-22 we pass the level of output that we had reached in 2019-20,” he says, adding that spending a huge amount of money on large infrastructure projects could give an impetus to the economy.
The calculation will, however, go haywire if the shrinkage of the GDP in the current fiscal is massive. Assuming that the contraction is 8%, the economy will then need 8.6% growth in 2021-22 to match the level of output achieved in March 2020. And 8.6% itself will be a hugely ambitious target, considering the havoc the virus can wreak globally and in India.
In the current gloom, the upswing in the highways and railway traffic is reassuring as it indicates the economy is picking up. Yet, what seems unsure is how stable will be the Vshaped recovery graph.
The economy is bouncing back, but conditions apply.