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HomeEconomyCoronavirus lockdown subdued ‘animal spirits’ of Indian economy in March

Coronavirus lockdown subdued ‘animal spirits’ of Indian economy in March

A sharp contraction in exports & decline in services sector activity weighed on the economy, with half of 8 high-frequency indicators showing weakness.

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Mumbai: India’s economic activity went cold and investments took a hit last month as the nation of 1.3 billion people shut down to prevent the coronavirus from spreading.

A gauge measuring so-called animal spirits showed activity slowed in March, with the needle moving left to 4 from 5 in the previous month. A sharp contraction in exports and a decline in services sector activity weighed on the economy, with half of the eight high-frequency indicators tracked by Bloomberg News showing weakness.

“Animal spirits” is a term coined by British economist John Maynard Keynes to refer to investors’ confidence in taking action, and the gauge uses the three-month weighted average to smooth out volatility in the single-month readings. The weakness following Prime Minister Narendra Modi’s 40-day lockdown order is seen pushing India toward its first annual contraction since 1980 this year.

While a plunge in economic activity is certain, there’s no clear path for recovery once the social distancing measures are eased, according to Bloomberg Economics’ Abhishek Gupta.

Here are the details of the dashboard:

Business Acitivity

Services output that makes up the bulk of India’s economy contracted for the first time in five months in March, with the index measuring activity in the sector dropping sharply to 49.3 from 57.5 in February, according to data from IHS Markit. A reading under 50 indicates contraction.

Manufacturing activity also lost momentum, and dragged the composite index lower to 50.6 in March from 57.6 the previous month.

That drop in activity cooled inflationary pressures, with input costs rising at the slowest pace in six months. The Reserve Bank of India, which last month cut interest rates and injected liquidity to cushion the economy from the virus impact, sees cooling price pressures opening the room for more policy easing going ahead.


Exports in March contracted by 35% from a year ago — the sharpest decline in at least two decades. Orders for goods such as chemicals, engineering equipment and clothes waned as most countries isolated themselves, choking off demand as well as supply lines.

Imports also declined by 29% in March, but more worryingly capital goods imports fell by 20% from a year ago, highlighting little investment activity, according to IDFC First Bank.

Consumer Activity

Car sales in India, the world’s fourth-largest automobile market, slumped 52% last month as more manufacturers including Mahindra & Mahindra Ltd., the nation’s biggest SUV maker, and Tata Motors Ltd., the owner of British luxury brand Jaguar Land Rover, were forced to halt production.

A survey released by the central bank showed consumer confidence was dour even before the lockdown was announced. The current situation index was at 85.6 in March, close to the all-time low of 83.7 recorded in January, with an index value below 100 representing pessimism.

That drop came amid rising worries about jobs and overall economic growth prospects, and fed into demand for loans, whose year-on-year growth eased further. Liquidity conditions showed improvement as the central bank pumped in more funds.

Industrial Activity

Night time data captured by satellites to gauge economic activity — formal and informal — through luminosity showed that overall activity slowed sharply last month. That overshadowed a recovery in the industrial sector in February.

The Index of Industrial Production rose 4.5% in February from a year ago, compared with an increase of 2% in January. India’s index of eight core infrastructure industries, which feeds into factory output, grew 5.5% in February — an 11-month high. Both the data are published with a one-month lag. – Bloomberg

Also read: Global markets will punish India for fiscal excesses: Former RBI governor Duvvuri Subbarao


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  1. You will hear about Coronavirus up to next election as an excuse for not accomplishing anything. Modi got a gift!!!

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