High frequency indicators point to retrenchment in economic activity: RBI report

Our Bureau. Mumbai | Updated on August 25, 2020 Published on August 25, 2020

High frequency indicators that have arrived so far in the wake of the pandemic point to a retrenchment in economic activity that is unprecedented in history, according to the Reserve Bank of India's latest report.

High frequency indicators include steel production, cement production, cargo handled at major ports, production of commercial vehicles, railway freight traffic, non-oil imports, tourist arrivals, real bank credit and insurance premium.

Warning that the pandemic will inflict deep disfigurations on the world economy, the RBI, in its latest annual report, said an assessment of aggregate demand during the year so far suggests that the shock to consumption is severe, and it will take quite some time to mend and regain the pre-Covid-19 momentum.

Private consumption

The report underscored that private consumption has lost its discretionary elements across the board, particularly transport services, hospitality, recreation and cultural activities. Behavioural restraints may prevent the normalisation of demand for these activities, it added.

The Reserve Bank’s survey for the month of July indicates that consumer confidence fell to an all-time low, with a majority of respondents reporting pessimism relating to the general economic situation, employment, inflation and income; however, respondents indicated expectations of recovery for the year ahead.

As per the report, urban consumption demand has suffered a bigger blow – passenger vehicle sales and supply of consumer durables in Q1 (April-June) 2020-21 dropped to a fifth and one third, respectively, of their level a year ago; air passenger traffic has ground to a halt.

Rural demand, by contrast, has fared better. Among underlying indicators, tractor sales picked up by 38.5 per cent in July, spurred by the robust pace of kharif sowing, while the contraction in motorcycle sales eased in July (from 35.2 per cent in June to 4.9 per cent in July). The decline in production of consumer nondurables turned positive in June.

A fuller recovery in rural demand is, however, being held back by muted wage growth, which is still hostage to the migrant crisis and associated employment losses.

The central bank observed that going forward, government consumption is expected to continue pandemic-proofing of demand, and private consumption is expected to lead the recovery when it takes hold, with non-discretionary spending leading the way until a durable increase in disposable incomes enables discretionary spending to catch up.

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Published on August 25, 2020
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