How badly is the economy being hit? - Capital Economics
India Economics

How badly is the economy being hit?

India Economics Update
Written by Shilan Shah

Real-time data on traffic, electricity demand and mobility suggest that, so far at least, India’s virus outbreak has had more of an impact on behaviour than it has on activity. We will continue to keep close tabs on the high-frequency data over the coming weeks.

  • Real-time data on traffic, electricity demand and mobility suggest that, so far at least, India’s virus outbreak has had more of an impact on behaviour than it has on activity. We will continue to keep close tabs on the high-frequency data over the coming weeks.
  • COVID-19 infections in India are rising at a startling rate, forcing authorities to respond by reintroducing containment measures. Real-time data can help to give an indication of the impact this is having on activity.
  • One that has shown a dramatic drop is traffic congestion in major cities. This is now back close to the trough during the national lockdown in April last year. (See Chart 1.) But just like a year ago, this should be interpreted with caution. Only 2% of adults in India own cars, an extremely low percentage even by EM standards. Those that do own cars tend to be the wealthy: the same cohort that are employed in the type of jobs that can transition more easily to working from home.
  • Other data suggest that activity is holding up better. Our in-house mobility tracker (details here) shows a chunky drop in April, but nowhere close to the extremes of last year. (See Chart 2.) That tallies with the current lockdown being looser in much of the country. Meanwhile, although labour market data in a large informal economy like India’s has limitations, the available weekly figures compiled by CMIE show only a small hit to employment so far. (See Chart 3.)
  • Similarly, electricity demand has remains at relatively “normal” levels. (See Chart 4.) This suggests that industry has stayed resilient so far: the sector typically accounts for 40% of electricity consumption. Restrictions have been more targeted than during the last year’s lockdown, mirroring the response of authorities in other countries that have faced second waves. Fewer firms have been forced to close. The manufacturing PMI for April due next week will provide further indications on the health of industry.
  • As things stand then, with containment measures less strict than a year ago, activity appears still to be holding up. The big unknown is whether these restrictions will be sufficient to curb the outbreak. If not and it continues, more draconian measures may still be needed.

Chart 1: Daily Traffic Congestion in Major Cities
(31st Dec. 2019 = 100)*

Chart 2: CE India Mobility Tracker
(% Diff. from Jan.-6th Feb. 2020, 7d Avg.)*

Chart 3: Weekly Unemployment Rate (%)*

Chart 4: Daily Electricity Consumption (GWh)*

Sources: CEIC, Google, Apple, CMIE, POSOCO, Capital Economics


Shilan Shah, Senior India Economist, shilan.shah@capitaleconomics.com