Economic activity eases slightly in Nov; Omicron fears loom on economic recovery

After peaking in October, economic activity eased slightly in November with key high frequency indicators, including e-way bill generation, card transactions, and purchasing managers index (PMI) slowing post festival season. While the economy looks set for a sharper revival in the third quarter, the recently emerged Omicron coronavirus variant may pose a threat to double digit economic growth prospects for the current fiscal.

Card transactions, after touching a one-year high in October, came down 5 per cent in November (month-on-month), as per data by the Reserve Bank of India (RBI). Cards transactions – debit and credit- at both point of sale and online worth Rs 1.29 lakh crore took place in November compared to Rs 1.37 lakh crore in October during the online festive sales. However, RTGS payments during the month were 8.4 per cent higher than October.

 Activity in India’s largest sector — services — remained strong in November. It was marginally lower than the October levels, when it had touched a ten and a half year high, according to a private survey. The IHS Markit Purchasing Managers’ Index (PMI) for services eased to 58.1 in September from 58.4 in October, marking the second-fastest rise in output since July 2011. The survey reflected sustained increases in new work and ongoing improvements in market conditions. A reading above 50 indicates expansion while below 50 denotes a contraction in economic activity. The manufacturing activity, as per the survey, grew at its fastest pace in 10 months in November, driven by strengthening demand and improving market conditions amid tentative signs of an improvement in hiring activity. While services sector segments related to travel and tourism were most impacted due to the pandemic, the information technology companies have performed exceptionally well due to robust demand.

Meanwhile, the average daily e-way bill generation slumped to a five-month low in November to 19.8 lakh after touching a record high of 23.7 lakh during the packed festive month of October, dampening outlook for goods and services tax (GST) collection. The GST collections surged to the second-highest level in November at Rs 1.31 lakh crore from Rs 1.3 lakh crore in the previous month. E-way bill numbers reflect in the GST collections with a month’s lag; hence December collections may be relatively muted.

“Looking ahead, collections may dip in December 2021, as suggested by the deceleration in the daily average e-way bill generation in the first three weeks of November 2021. Nevertheless, we expect CGST collections to rise to Rs. 5.8 trillion in FY2022, exceeding the FY2022 BE by Rs 50000 crore,” said Aditi Nayar, chief economist, ICRA Ltd.

 E-way bills are compulsory for the movement of all consignments worth more than Rs 50,000, hence, is an early indicator of trends in demand and supply in the economy.

India’s economy grew for the fourth straight quarter in Q2 at 8.4 per cent, and even surpassed the pre-COVID-19 levels by 0.3 per cent, suggesting that the economy has partially recovered the ground lost due to the pandemic.

Services sector as a whole posted a 10.17 per cent growth compared to 11.4 per growth in the first quarter and an 11.4 per cent contraction in the corresponding quarter of last year.

Trade, hotels and transportation sector grew by 8.2 per cent, compared to a 16.2 per cent contraction in the same quarter last year. It was, however, 9.2 per cent lower than the 2019-20 levels.

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