India’s animal spirits in deep slumber despite resumption of economic activity

The needle on a dial measuring animal spirits swung to the left last month, reflecting weakness in a majority of India's 8 high-frequency indicators.

An electronic ticker displaying sensex at Bombay Stock Exchange (BSE) in Mumbai, India | Photo: Dhiraj Singh | Bloomberg

Mumbai: A downturn in business and investment activity in India deepened in May despite parts of the economy exiting the world’s strictest stay-at-home measures to contain the coronavirus pandemic.

The needle on a dial measuring so-called animal spirits swung to the left last month, reflecting weakness in the majority of eight high-frequency indicators compiled by Bloomberg News. The gauge uses the three-month weighted average to smooth out volatility in single-month readings.

The reading mirrors double-digit declines in a cross-section of indicators from infrastructure output to exports, and supports some of the grim economic forecasts for India. The International Monetary Fund predicts Asia’s third-largest economy to contract 4.5% this year — it’s first in more than four decades — compared with an April projection of 1.9% growth. That’s only slightly better than Goldman Sachs Group Inc.’s forecast of a 5% decline, while Bloomberg Economics sees a 10.6% plunge.

Here are details of the dashboard:

Business Activity

Activity in India’s dominant services sector showed a mild improvement in May from a month ago, but that’s hardly to be read as a sign of recovery. The main services index rose to 12.6 from a record low of 5.4, while manufacturing was at 30.8. These together weighed on the composite index, which came in at 14.8. A reading below 50 indicates contraction.

A sharper contraction in imports relative to exports was also indicative of the weak state of the domestic economy, according to economists, including Bloomberg Economics’s Abhishek Gupta.

Consumer Activity

Consumers — the bedrock of the Indian economy — kept their purse strings tight amid fear about loss of income and jobs. While ShopperTrac data showed footfalls at retail stores fell nearly 30% in May, a central bank survey pointed to consumer confidence collapsing to a historic low.

Auto sales — a key sign of demand in the economy — remained tepid after registering zero sales in April.

Bank credit growth slowed to 5.5% year-on-year from 6.8% in April and 13.5% a year ago, while outstanding bank credit dropped to 102.2 trillion rupees in May from 102.7 trillion rupees in April. That was despite ample liquidity as the central bank kept pumping cash to keep financial conditions accommodative.

Industrial Activity

The Index of Industrial Production fell sharply in April — the peak of the virus-related lockdown — when a majority of industrial sectors were shut. Many units that responded to the survey reported no production, the government said, while adding that the numbers weren’t comparable with earlier months.

Meanwhile, India’s infrastructure industries output shrank by a record 38.1% in April from a year ago. The sectors, which make up 40% of the industrial production index, had contracted by 9% in March. Both data are published with a one-month lag.- Bloomberg