Manufacturing sector raises hopes of recovery

Are green shoots visible in India's economy? It's too early to say anything specific on this. Our country's gross domestic product (GDP) contracted by a whopping 23.9 per cent during April-June 2020, the first quarter of the current financial year. This deep and steep contraction in the economic activity indicated the debilitating impact of the Covid-19 pandemic on the country. Though Covid-19 triggered by Chinese-originated novel coronavirus did not show mercy on any of the nations, no other major economy suffered the way India did in those three months for which data was announced recently. The total lockdown, which was in force from March 25 to April 20, crippled the economy. Further, subsequent curbs also took a heavy toll on it.

The unlocking of the economy- which began in phases on April 20 and still continuing - paved the way for the resumption of the economic activity in the country. But the economy is yet to go full steam owing to ever-rising Covid-19 cases and pandemic's spread to hinterlands. From a low of 1,553 new daily infections on April 20 when the easing of Covid-induced curbs began, the daily caseload ballooned to over 74,000 now. On certain days, the number even hovered around 1 lakh mark. Currently, India, with nearly 67 lakh in total infections, ranks second after the US in global Covid tally. Steep increase in infections during a once-in-a-century pandemic like this will certainly lead to slowdown in economic activity.

This had prompted many global and domestic rating agencies to forecast a negative GDP growth of around 11 per cent or higher in India in FY21. If this comes true, the economy will receive a huge jolt and may need a couple of years to recover.

However, there are ample chances of the economy throwing up a better-than-expected performance if activity picks up and green shoots sprout. The manufacturing data for September 2020 announced recently brought in some cheer. In addition to improving for a second consecutive month, the manufacturing activity reached an eight-and-a-half year high in September. The headline IHS Markit India Manufacturing Purchasing Managers' Index (PMI) zoomed to 56.8 in September from 52.0 in August. The September reading is the highest since 2012.

The key index slipped into the negative zone this April after clocking positive growth for 32 straight months. In PMI parlance, a print above 50 means expansion, while a score below that, points to contraction. Increase in new orders ahead of festive season fueled expansion in the key sector, raising hopes of a speedier economic recovery. Services sector also saw improvement last month.

The Modi government announced Rs 20-lakh-crore Atmanirbhar Bharat Abhiyan in May to help the ailing economy tide over the Covid crisis. This included a six-month moratorium on bank loans, which ended in August. The GDP recovery is likely to gather more pace if the Centre launches another round of stimulus.

But the economic recovery also depends on how the pandemic plays out and when the much-awaited vaccine becomes a reality. GDP will suffer more if a second wave of infections sweeps across the county as estimated by some. Anyway, it will be a while before we could bid farewell to this Chinese virus. Till that time, our economy will be in a tight spot.