Restocking exaggerated improvement in Oct’s economic performance: ICRA

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New Delhi, Nov 24 | Restocking activity ahead of the festive season to satisfy pent-up demand had exaggerated the pace of improvement recorded by many lead economic indicators in October 2020, said ratings agency ICRA on Tuesday.

According to the agency, prominent base effects also muddied the trends in certain sectors, related to a later onset of the festive season in October 2020, relative to 2019, which has affected the number of working days and the concentration of festive sales.

Besides, the ratins agency said that available trends for early November 2020, suggested some moderation in spike during the ongoing month.

“We now expect a stronger rebound in economic activity in H2 FY2021, compared to our earlier assessment (-3.5 per cent),” said Aditi Nayar, Principal Economist, ICRA.

“However, we caution that the spikes in production seen in the various sectors in October 2020, are an exaggeration of the true recovery on the ground, as they have been driven by a large component of pent-up demand that may not sustain after the festive period is over.”

Furthermore, ICRA pointed out the potential re-imposition of restrictions in one or more states, on account of a fresh surge in Covid-19 infections, may temper the momentum of recovery in the coming months.

In ICRA’s set of 17 high frequency indicators, the YoY performance of 10 sectors recorded a pick-up in October 2020.

“This sub-set includes the sharp spikes in the output of automobiles and generation of GST e-way bills, as well as the relatively moderate improvements in electricity generation, ports cargo traffic, domestic airlines’ passenger traffic, as well as fuel consumption,” the ratings agecy said in a report.

“However, the YoY performance of six indicators deteriorated in October 2020, relative to the previous month, including the output of Coal India Limited (CIL), vehicle registrations and non-oil merchandise exports.”

In addition, the growth in non-food bank credit remained unchanged at a modest 5.1 per cent in YoY terms on October 23, in line with the growth recorded as on September 25.

“Five indicators continued to display a YoY contraction in October 2020, reinforcing the unevenness in the recovery that is playing out in the different sectors of the economy,” the report added.

Source: IANS

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