India is limping back to pre-COVID normal as activity resumes in all sectors across the country. All data that comes through these days should be read with caution, impacted by an unusually high base effect, with the economy moving out of unprecedented lockdown. So, even with seemingly bright spots, we should keep in mind that there is no growth spurt as such, India is only returning to its pre-COVID levels of economic activity faster than expected.
We find encouraging trends towards a quicker recovery - the Markit PMI Manufacturing Index rose to 56.8 in September; the Services Index went up for the fifth straight month, but at 49.8, remained a tad short of expansion. A number of high frequency indicators moved upwards in September - GST collection, auto sales, freight loading, e-way bills, power consumption
. The reason we can expect a faster turnaround now is that the states that underpin India’s growth have eased almost all restrictions; Google data shows
that workplace mobility in six main states recorded its highest since March. Though we expect the upcoming festive season to be muted compared to previous years, with a bumper kharif crop and higher MSPs
there should be more cheer than was anticipated earlier
On the other hand, delayed payments
and job losses will weigh heavily
on Indian household spends. CMIE data shows that employment increased in September, but the increase was skewed in favour of low-quality jobs, mainly in rural areas and there was a sharp fall in urban workforce. We are clearly a very long way from equitable employment and growth.
The RBI Monetary Policy Review on 9th October
has come through with some excellent moves encouraging liquidity to put growth back on track (Read Renu Kohli
, Soumya Kanti Ghosh
). One announcement of particular interest to us removes business uncertainty for Payment Systems Operators – authorisation will now be valid on a perpetual basis, subject to certain conditions – no fixed period validity for licenses anymore. Currently, on-tap licenses for up to five-year terms are being issued to non-banks issuing Prepaid Payment Instruments, operating White Label ATMs or the Trade Receivables Discounting Systems, or participating as Bharat Bill Payment Operating Units. This move acknowledges the changing dynamics of regulatory capacity and market and will boost investment and innovation in digital payments.