Economic Activities Back to Pre-Pandemic Levels

High frequency indicators such as mobility, power consumption and labour participation along with index for the economic activities suggest that Indian economy is on the fast track of recovery with economic activities only about 1.9% below the pre-COVID19 levels. These high frequency economic indicators have been improving continuously for more than six months barring a few exceptions such as mobility and labour participation indicators. PMI as well as IIP have also been showing upward movement. However it will take longer for the mobility and labour participation indicators to achieve the pre-pandemic levels.

Mobility indicators are still 10-15% below the pre-pandemic levels but with the lifting of lockdown restrictions to progressively minimal level, the mobility indicators will improve over time to achieve the pre-pandemic levels however would be dependent on the risks associated with different strains of novel coronavirus. Considering the experiences in the Eastern Europe, risks are still high and will keep affecting the overall sentiments in the economy. As a result, it will keep on adversely affecting the employment opportunities and labour participation as well as the capacity expansion in the economy.

The continued recovery in the Indian economy since May 2020 suggests that Atma Nirbhar Bharat Package as well as the RBI’s accommodative monetary policy stance has been successful in reviving the demand in the economy as well as churning the supply chain. The revival of economic activities back to the pre-pandemic levels is the most important signal of recovery and growth in the economy than the GDP growth rates (due to base effect). But it must be kept in mind that one year back (during pre-COVID era), the situations at the economic front were not very upbeat. Rather Indian economy was struggling with a plethora of problems such as slowdown in the economy, mess in the banking and financial services sector, stabilization of the GST regime and increasing fiscal deficit. So there is light at the end of the tunnel but there is a need for better policy response as there persists the risk of elevated core inflation in the economy.

Rajeev Upadhyay

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