August , 2020
India hopes Unlock 3.0 will boost the pace of recovery
12:12 pm

Tushar K. Mahanti

The world economy is sinking. The American economy has shrunk by a record 32.9% in the April-June 2020 quarter over the same period a year ago. The Euro zone economy contracted by 12.1% during April-June 2020 as compared to the first three months of the year. The region’s largest economies each contracted by more than 10% during the period due to strict lockdown measures imposed to contain the spread of Covid-19. German GDP contracted by 10.1%; Italy’s sank by 12.4%; France’s fell by 13.8% and Spain’s GDP declined by 18.5%. 

Among the major economies, only China seems to have come out of the decelerating trend. China's economy recorded a modest growth in the April-June quarter from the first contraction on record in the previous quarter as policymakers announced huge economic packages to counter the effect of Covid-19.  China’s GDP grew by 3.2% in the April-June quarter against a decline of 6.8% in the previous three months.

India’s GDP is predicted to decelerate at a record rate during the first quarter of this fiscal. Given the severity of the pandemic and the duration of the safety measures enforced, the rating agency ICRA expects the Indian economy to have contracted by 25% in Q1 of FY2021.

Macro indicators suggest a big fall in India’s GDP

But the ICRA figure is only a projected estimate. In fact, what we have about India’s first quarter growth trend so far are only predictions. The actual figures will be known on the last day of this month when CSO will announce them. If ICRA's prediction looks higher, the performance of most of the economic indicators during the lockdown period would suggest a severe growth deceleration in the first quarter. Be it the automobile industry, the steel, cement, manufacturing, realty or transport and aviation sectors - all have witnessed a halt in their businesses.

The country's largest car maker Maruti Suzuki India witnessed the first-ever quarterly loss in Q1 2021 since it was listed in July 2003. Maruti incurred a net loss of `249 crore in the first quarter of the current year against Rs 1,435 crore profit in the same quarter last year following a sharp fall in sales. The company sold 76,599 vehicles during Q1 FY21 against 4,02,594 in the same quarter a year ago – down by 80%. 

The automobile industry was suffering from demand constraints for the last two years but the pandemic has worsened the situation further. Total automobile sales declined by 75%. Passenger vehicle sales declined by 78.4% and commercial vehicle sales declined 84.8% during the April-June 2020 quarter as compared to the same quarter last year. The massive fall in the sale of commercial vehicle reflects the degree of slowdown in the movement of goods across the country. 



Auto sales (Number)



Q1 2021

Passenger vehicle



Com vehicle









Source: SIAM



The hefty fall in automobile production and a near halt in realty sector’s activities impacted the steel and the cement manufacturers badly as a large part of their products are sold to these two sectors. The cumulative steel production declined by 51.7% to reach 14.6 million tonnes during April-June 2020 from 30.1 million in the same period last year.

This has resulted in a huge financial stress for steel makers. JSW Steel, India’s largest steel maker witnessed a 30% fall in output in the first quarter of the current year against the same period last year. The steelmaker reported a net loss of `561 crore in the April-June period against a net profit of `1,028 crore a year ago. It’s the first loss in six years.

The production of cement declined by 38.3% in the April-June 2020 quarter from 8.6 million tonnes in the same period last year to 5.3 million tonnes now. The industry major, UltraTech Cement witnessed 37.84% decline in consolidated net profit and 33.2% fall in revenues in the first quarter.

Following shutting down of industrial and business activities, the power demand shrank and the power companies were forced to curtail generation. Power generation fell as much as 23% in April 2020 over the same month in the previous year. Although the rate of fall in generation came down in subsequent months following unlocking of the economy, the cumulative fall at over 16% for the quarter clearly indicates the low activities in industrial units and commercial establishments.   

Barring the fertiliser industry, the production of each of the eight core industries which form the base of the Indian industrial sector has continued to decelerate since the lockdown was imposed. The index of eight core industries declined by 15% in June over and above a 22% fall in May. The cumulative index of the core industries declined by 24.6% in the April- June quarter over the same period last year.

The deceleration in production or profit, however, was not restricted to core sector companies. The aviation industry, the hotel and restaurants and even the country’s prized sector, the software companies have all suffered during the period.

India’s largest low-cost carrier IndiGo reported a net loss of `2,844 crore during Q1 2020-21 against the highest-ever quarterly profit of `1,203 crore that it reported in the same period last year. If Indian Hotels Company (IHCL) reported a net profit of `4.98 crore in its consolidated financial results for the quarter ended June 30 this year, it witnessed a decline of more than 45% from ` 9.10 crore in the corresponding period of last year.

TCS, the country's largest software exporter witnessed a 13.8% fall in its consolidated net profit in the quarter ended June 2020. It’s consolidated revenue during the period increased by a negligible 0.4% caused by market contraction following lockdown across the world. Except Europe (2.7%) and Latin America (0.2%), revenue growth suffered in all major markets like North America (-6.1%), UK (-8.5%), India (-27.6%) and Asia Pacific (-3.2%).

The poor performance was, however, not confined to companies of select industry groups but was spread across corporate India. The compilation of quarterly financial results of 430 listed companies by Dalal Street Investment Journal finds that their aggregate net profits have declined by 37.4% in the April-June 2020 quarter compared to the same period last year. Total sales of these companies declined by 24.3% during the same period. Following sharp deceleration in profit and revenue earnings, the aggregate tax payments by these companies were down by 29.2%    



Consolidated financial accounts of 430 cos. (Rs crore)




% Change





Operating Profit












Net Profit / Loss




Source: Dalal Street Investment Journal (as on Aug 6, 2020)


The poor performance of India Inc reflected in the sharp fall in government’s tax revenue. In April 2020, the GST collections declined by 71.7% compared to the same month of last year. The collections improved in subsequent months following unlocking of select economic activities but the cumulative collections were still 41% lower in the first quarter of the current fiscal compared to the same period last year.

Corporate tax collections declined by 23.2% in the quarter while income tax collections declined by 36% amid pay cuts and job losses due to the lockdown. The centre’s total tax collections fell by 32.6% in the April-June quarter. The revenue shortfall widened the fiscal deficit at the end of June to `6.62 lakh crore or 83.2% of the full-year budget estimate of `7.96 lakh crore. This is the highest fiscal deficit in percentage terms for the first quarter going back to available data since FY1999.

Worse, RBI’s latest consumer confidence survey shows that Indian households have never been more pessimistic about the economy, falling incomes or employment prospects than at present. The current situation index (CSI) touched a historic low of 63.7 in May 2020 round of the survey, as against 85.6 in the study conducted in March this year.

The future expectations index fell below 100 to 97.9 in May 2020, from 115.2 in March. It has fallen below 100 for the first time during the present government’s tenure. The survey captures consumer sentiments across parameters such as general economic situation, employment scenario, overall price situation, one’s income and spending.

Results of the survey are also indicative of expected deceleration in consumption expenditure since households, anticipating job losses and economic slowdown, will reduce their spending.

Economy shows signs of improvement

What is encouraging, however, is that although the cumulative Q1 performance of most of the growth indicators was poor, there were signs of improvement towards the end of the quarter. As the country goes through phases of 'Unlock' and economic activities are permitted in a staggered manner, the Department of Economic Affairs' (DEA) July economic report has appeared optimistic and suggested that the worst seems to be over, with major indicators showing improvement.

The report argues that, “With the forecast of a normal monsoon at 102% of the long-period average (LPA), agriculture, which contributes about 15% of total gross value added, is set to cushion the shock of the Covid pandemic on the Indian economy in 2020-21.” 

With the favourable spread of monsoon expediting the sowing of kharif crops, a bountiful production is expected in 2020-21. As on July 31, 2020, farmers have sown 88.21 million hectares; 14% higher than that of the corresponding period last year. Fertiliser sales have surged by almost 98% on year-on-year in May 2020 and by 79.3% in June reflecting a robust agricultural sector. Tractor sales have turned around significantly from a YoY contraction of 79.4% in April 2020 to a positive growth of 4% in May and 22.4% in June, suggesting a recovery in rural demand.

With a forecast of a near normal rainfall in August, the sowing operation is expected to be completed in time. The IMD has predicted that August is likely to receive a rainfall of 97% of its long-range forecast with an error margin of plus/minus 9%.

Beside a thriving farm sector, the report also cited that better performance of the index of industrial production, Purchasing Managers Index (PMI), power generation, production of steel and cement, railway freight, traffic at major ports and e-way bill generation among others towards the later part of the last quarter show that economic activities are picking up.

Reflecting the trend, GST collections for example, have started increasing since May, indicating that economic activity had picked up. GST collections that nose-dived to `32,172 crore in April increased to `62,151 crore in May and further to `90,917 crore in June 2020. GST collections were estimated at `87,422 crore in July, around 95% of the pre-Covid monthly average, indicating that economic activities have picked up, although a large chunk of the services sector was yet to be operational.


GST collections (Rs crore)
















Source: Ministry of Finance, GoI.

Steel production, which declined to a paltry 2.1 million tonnes in April when industrial activities came to a complete standstill following the lockdown, has picked up thereafter. The production increased to 5.8 million tonnes in May and further to 6.6 million tonnes in June.

Likewise, cement production too has started increasing following the unlocking of the economy. Cement production fell to just 4.3 million tonnes in April from 24.8 million tonnes in the previous month. The production began increasing from May and was estimated at 26.3 million tonnes in June.


      Production in million tonnes















































Source: Ministry of industry and internal trade, GOI


And if the growth of manufacturing output continued to decelerate in the first quarter, the improvement in Purchasing Manager’s Index suggests an improvement in sentiments. The PMI compiled by IHS Markit, stood at 47.2 in June, compared with 30.8 in May on a seasonally adjusted basis. According to the IHS Markit, the manufacturing PMI data suggests that India's manufacturing sector moved towards stabilisation in June with both output and new orders contracting at much softer rates than seen in April.

The external trade too, after touching the nadir in April, has picked up. External trade volume has increased from $ 27.48 billion in April 2020 to $ 42.30 billion in June. Exports have more than doubled between April and June from $10.36 billion to $ 21.19 billion. Imports have, however, increased by only about $ 4 billion due to low crude import bill.

Interestingly, even as the country is struggling to keep its economic activities running, the electronics and IT ministry’s Production Link Incentives (PLI) scheme announced last April has received an overwhelming response to set up or expand production base in India. It has been confirmed that over 22 applications were received. The list of global applicants includes Samsung, Pegatron, Foxconn, Winston and Rising Star. The Union telecom and IT ministry has announced that as many as 22 domestic and international firms have lined up with proposals for mobile phones production worth `11 trillion, which have potential to create direct and indirect jobs for around 1.2 million people over the next five years.


That the economy is showing signs of upturn or the global mobile manufacturers are showing interest to set up production lines in India are great news. Their success will depend on the efficiency with which the government tackles the Covid-19 pandemic. India’s top 12 growth driving states account for 85% of the Covid-19 case load with 40% of confirmed cases concentrated in the top two growth drivers, Maharashtra and Tamil Nadu. The spread of Covid-19 has to be controlled for the economy to recover.

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