Thought May 06, 2020 / 09:18 am UTC

India: Daunting Data and Delayed Fiscal Stimulus

By Charu Chanana

India’s shocking April PMI at 5.4, along with zero car sales and massive job losses, are the first signs of economic stress caused by the lockdown and suggest that a double-digit contraction may be on its way. Fiscal stimulus has been restrained and further delays could dampen the momentum further.

India’s dominant services sector reported a sharp contraction in April amid a nationwide lockdown to suppress the spread of COVID-19. Markit services PMI dropped to an all-time low of 5.4 in April from 49.3 in March, possibly the lowest level globally.

This is especially concerning as the services sector makes up more than half of India’s GDP, suggesting a double-digit drop in Q2 GDP growth is now likely. Manufacturing PMI, reported earlier this week, also weakened to 27.4 in April from 51.8 in March. Composite PMI, as a result, has dropped to 7.2 in April from 50.6 in March.

Many other high-frequency data points have pointed toward economy activity grinding to a halt in April. Key manufacturers reported zero car sales for the month, while private think tank the Center for Monitoring Indian Economy (CMIE) said that 122 million peopleor more than 9% of the populationhave become jobless in the past month. Goods and services tax collections for certain state governments have reportedly slumped by 80-90%.

It is no surprise that lockdown measures have hampered economic activity, but we are concerned that virus cases are still rising and cautious consumer behavior will likely last long after restrictions are relaxed. Meanwhile, India’s partial resumption of activity has been messy, suggesting a higher risk of a steep second wave of infections.

The restrained fiscal stimulus is further making matters worse, with India’s fiscal package at below 1.0% of GDP so far. Further delays in topping up support to the economy will only delay the recovery process.

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Analyst Certification
I, Charu Chanana, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.