Recovery continues but losing tempo

The contraction of 1.6 per cent in the factory output for January comes way below expectations, suggesting there are several pockets of frailty within the broader recovery. The slowdown was broad-based — both capital and consumer goods fared poorly. The bad news is that labour-intensive sectors remain sluggish.

While the services sector is picking up, the February composite PMI was up at 57.3 from 55.8 in January — the loss of momentum elsewhere is a concern at a time when there is fresh surge of infections especially in key states like Maharashtra.

A new round of lockdowns could slow the revival. Retail two-wheeler sales continue to be dull; between April 2020 and February, they have gone up in just one month possibly because vehicles have become expensive and unaffordable for some sections. While GST collections for January surpassed expectations, the generation of e-way bills has stayed more or less flat since October 2020.

Loan growth, while ticking up, remains low at about 6 per cent; importantly corporate bond issuances have come off sharply in January and February to levels of Rs 45,000 crore per month compared with the average for the March-December 2020 period. Pertinently, state-owned entities borrowing seem to be doing the bulk of the borrowing.

The performance of the core sector, for instance, continued to improve in January but at a slower pace: the increase was 0.1 per cent month-on-month seasonally adjusted versus 2.2 per cent in the previous months.

CMIE data show that at 6.9 per cent, unemployment in February was lower than the average of 7.3 per cent since July 2020; however, both the labour force participation rate and the employment rate remain significantly lower than their levels before the lockdown and it could be a while before these move up to pre-pandemic levels. fe

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