Post Mortem

Year 2020: Turnaround point in human beings

By Nagaland Post | Publish Date: 12/29/2020 12:19:07 PM IST

 The Year 2020 to be known as a year of discontent, isolation and strange apprehensions, began with the discordant notes of the Shaheen Bagh protest and it is going to be almost over with scars.India started the calendar year by recording the slowest GDP growth rate in six years. The growth of real GDP in 2019-20 is estimated at 5.0 percent. The consumer price inflation stood at 7.6 percent in January 2020. Growth of M3 (Year on Year (YoY) basis) as on 31st January 2020 stood at 10.2 percent. The value of merchandise exports and imports(in US$ terms) declined by 1.7 percent and 0.7 percent respectively in January 2020. Foreign exchange reserves stood at US$ 476.1 billion as on 21st February 2020.

In the month of March of 2020, COVID-19 pandemic has emerged as a key risk to human health and is causing significant and rising human costs and economic turmoil. The adverse impact of COVID-19 has started to severely halt the growth momentum due to the imposition of the complete 68-day lockdown. Merchandise exports, subsequent to witnessing positive growth in February (y-on-y), showed negative growth in March 2020 (y-ony) of (-)34.6 per cent. Imports, also, reported negative growth of (-)28.7 per cent (y-on-y) in March 2020 after a positive growth of 2.5 per cent in February 2020). Consumer price inflation eased to 5.9 per cent (y-on-y) in March 2020.

As the lockdown continued, manufacturing and services activity came to a standstill in April 2020 resulting in supply side disruptions and demand falling to unprecedented lows that fed into PMI indices going into a free fall. A huge decline in railways freight traffic for April 2020 gave clear evidence that economic inactivity was indeed widespread both across regions and sectors.

 India imposed a strict lock-down from 25 th March, 2020. April, 2020 was the month of economic standstill with restrictions on various activities eased in May, 2020 as Government of India made a courageous choice of supporting livelihoods that in turn made the containment of the pandemic more challenging. As restrictions were further eased, the country entered the unlock phase in June, 2020. The loss of economic output from more than two months of lock-down was first triggered from the supply side as labour stayed away from work. The demand side caused further loss of output as consumption of goods and services dependent on customer mobility fell. This twin supply-demand shock on output subsequently led to loss of income, which caused further decline in consumption resulting in further loss of output.

With India unlocking, the worst seems to be over as high-frequency indicators show an improvement from the unprecedented trough the economy had hit in April 2020. These include Index of Industrial Production (IIP), Purchasing Managers Index (PMI), power generation, production of steel and cement, railway freight, traffic at major ports, air cargo and passenger traffic, e-way bill generation capturing inter-state movement of goods, consumption of petroleum products and motor vehicle registration among others.

India’s manufacturing purchasing managers’ index (PMI), at 52.2, has moved into expansionary zone in August for the first time since the lockdown, presenting much required recovery prospects for the manufacturing sector. The V-shaped pattern of recovery is seen in the following high-frequency indicators: auto sales, tractor sales, fertilizer sales, railway freight traffic, steel consumption and production, cement production, power consumption, e-way bills, GST revenue collection, daily toll collections on highways, retail financial transactions, manufacturing PMI, performance of core industries, capital inflows and exports.

Movement of high frequency indicators in October clearly point towards broad based resurgence of economic activity, notably in healthy Kharif output, power consumption, rail freight, auto sales, vehicle registrations, highway toll collections, e-way bills, rebound in GST collections and record digital transactions. Rural consumption has stayed strong, in part helped by sustained MSP procurement of food grains by government at higher prices. Manufacturing Purchasing Managers’ Index rose from 56.8 in September to 58.9 in October, pointing to the strongest improvement in the health of the sector in over a decade. PMI Services index also rose to 54.1 in October, ending the seven-month sequence of contraction, signalling improved market conditions. With the onset of the festive season, overall consumption is expected to see further uptick in the coming months enhancing prospects of faster economic normalisation.

The year-on-year GDP contraction of 7.5 per cent in Q2 of 2020-21 underlies a quarter-on-quarter surge in GDP growth of 23 per cent. Growth in fixed investment along with a gradual increase in private consumption and sizeable contribution from net exports has led the recovery of the Indian economy in Q2. 

The growth drivers have obtained largest support from agriculture followed by construction and manufacturing. Manufacturing PMI moderated to 56.3 in November against the decade high level of 58.9 in October. With PMI Services index also ending the seven-month sequence of contraction to rise to 54.1 in October, growth of output in the second half of 2020-21 is poised to replicate the performance of Q2.

Prof. M. K. Sinha, Nagaland University, Lumami

Launched on December 3,1990. Nagaland Post is the first and highest circulated newspaper of Nagaland state. Nagaland Post is also the first newspaper in Nagaland to be published in multi-colour.

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