Economy finally looks nearly out of the pandemic woods; Icra sees Q2 GDP at 7.7 pc

Icra Rating chief economist Aditi Nayar said in a note on Thursday.

Icra Rating chief economist Aditi Nayar said in a note on Thursday. Pixabay Photo

With half of the 15 high-frequency indicators recovering to the pre-pandemic levels in the second quarter, the economy finally looks nearly out of the pandemic woods, helping the Q2 GDP print at 7.7 per cent, according to a report.

However, the September print was not as good as the quarter, indicating that the recovery remains uneven, it added.

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While continued base normalisation, emerging supply-side constraints and excess rainfall have dampened the year-on performance of most of the 15 high-frequency indicators in September, the economic recovery has widened in Q2 as the crisis wrought by the second wave has abated, with a larger number of sectors bettering their pre-pandemic performance, relative to Q1,

Icra Rating chief economist Aditi Nayar said in a note on Thursday.

The annualised performance of 14 of the 15 high-frequency indicators, except non-food bank credit, have worsened in September compared to August.

Accordingly, Nayar projects real GDP in Q2 to have mildly trailed the level of Q2 of FY2020, at 7.7 per cent, compared to 2.21 per cent in Q1, led by the continued subdued performance of the contact-intensive sectors.

She also expects the daily average generation of the GST e-way bills in October to surpass the peaks seen in February-March

2021, indicating a better print of the growth numbers in the second half of the current fiscal.

Despite the widened recovery in Q2 with a larger number of sectors bettering their pre-pandemic performance, the revival is multi-speed, with a considerable variation in the pace of growth across sectors, Nayar said.

There is also the growing evidence of a K-shaped recovery, as is evidenced by the sharp disparity in the performance of the stock markets, robust growth in direct tax collections and improved business sentiment, juxtaposed with the continued pessimism displayed by urban households in the RBI's latest consumer confidence survey.

The low performance in September was mainly on account of a combination of factors such as continued base normalisation (especially for motorcycles and scooters, domestic airline passenger traffic, and generation of GST e-way bills), supply-side constraints (non-availability of semi-conductors particularly for passenger vehicles) and excess rainfall.

The trend was split compared to Q1 volume performance -- seven of the 14 non-financial indicators, including the quarterly output of commercial vehicles, rose above their pre-pandemic volumes in Q2, such as non-oil exports, GST e-way bills, the output of Coal India and electricity generation.

However, Q2 FY22 performance of sectors like air travel, supply of and demand for automobiles, ports cargo traffic and diesel consumption lagged the level in Q2 of FY20.

Yet, this marks an improvement relative to the situation in Q1 FY22, when only three sectors -- ports cargo traffic, rail freight and non-oil exports -- had reported higher volumes relative to Q1 FY20.

We also expect a base-effect led moderation in the pace of annualised growth of real GDP to 7.7 per cent in Q2 from 20.1 per cent in Q1 FY22, Nayar said.

Early data reveal mixed trends for October. Electricity demand has risen mildly to 2.7 per cent so far in the month, from 0.8 per cent in the previous month, with demand contained by the dip in temperature levels with surplus rainfall amid concerns regarding coal availability.

The daily average generation of the GST e-way bills in October may surpass the peaks seen in February-March 2021, boosted by healthy demand during the festive season. But, supply-side constraints would dampen output in sectors like automobiles, with the semi-conductor shortage set to suppress production in October as well, Nayar noted.

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