India’s economy accelerated in September, as revival in demand and business activity helped propel the South Asian nation toward recovery from the pandemic-induced recession.
Five of the eight high-frequency indicators, including exports, tracked by Bloomberg News improved last month, while three were flat. That helped move the needle on a dial that measures so-called ‘animal spirits’ to 5 from 4 in August, a level reached by using the three-month weighted average to smooth out volatility in single-month readings.
Economists, including those at the Reserve Bank of India, attributed the recovery to stifled demand after a strict lockdown imposed in March to contain the coronavirus outbreak hit consumption of goods and services. While inventory replenishment will support business activity in the coming months, the improvement may not yet be enough to prevent Asia’s third-largest economy from contracting in the financial year through March 2021.
Business activity
Activity in India’s dominant services sector continued to rally, with the leading index rising to 49.8 in September from 41.8 in August. While that’s a notable improvement from the April record low of 5.4, a number below 50 suggests that it is still in contraction territory and will likely be a drag on overall growth in the July-September quarter.
Manufacturing activity was a bright spot, with the Purchasing Managers Index climbing to 56.8, the highest reading since January 2012, due to a strong expansion in new work orders, according to IHS Markit. This helped the composite index to return to expansion territory, at 54.6, after five months of contraction.
Exports
Exports returned to positive territory and shipments increased 6 percent in September from a year earlier. Agricultural exports and shipments of drugs and pharmaceuticals helped the recovery, and engineering products and chemicals also contributed to the increase. The contraction in imports eased, leading to a reduction in the trade deficit.
Consumer activity
Passenger car sales, a key indicator of demand, rose 26.5 percent in September from a year earlier. Retail sales also showed signs of stabilizing, despite being nearly 70 percent below the prior-year level, according to ShopperTrak. That was mainly because consumer confidence held up in landfills, an RBI survey showed, with respondents concerned about jobs, lost income and stubbornly high inflation.
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