ICRA Business Activity Monitor implies Indian economic activity was robust, albeit uneven, in April 2022

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Ratings agency ICRA launched the ICRA Business Activity Monitor – an index of high frequency economic indicators, a composite gauge of economic activity during each month. The ICRA Business Activity Monitor stood at a healthy 115.7 in April 2022, displaying a high year-on-year (YoY) growth of 16.1%, boosted by the low base related to the onset of the second wave of Covid-19 in India. While a majority of its constituents recorded higher volumes in April 2022 relative to the pre-Covid level, a few trailed their April 2019 levels, indicating that while the recovery has gained traction, it remains incomplete.

Ms. Aditi Nayar, Chief Economist, ICRA Ltd said: “The ICRA Business Activity Monitor – an index of high frequency economic indicators – stood at a healthy 115.7 in April 2022. Encouragingly, it surpassed the performance recorded in all the months of FY2022, barring March. Moreover, it exceeded the pre-Covid levels of April 2019 by a considerable 15.8%. These trends suggest that Indian economic activity was robust in the just-concluded month, in spite of the escalation in geo-political tensions. While a majority of the constituents of this index recorded higher volumes in April 2022, relative to the pre-Covid level, auto output, diesel consumption and airline passenger traffic trailed their April 2019 levels, reinforcing that while the recovery has gained traction after the third wave of Covid-19 in India, it remains uneven.”

Given the sequential decline typically witnessed in the month of April from the March highs, the ICRA Business Activity Monitor reported a modest 6.5% MoM dip in April 2022. However, this was better than the trend seen during April 2019 (-10.1%), indicating the momentum of activity remained intact despite the ongoing global headwinds, as was corroborated by near record-high generation of the GST e-way bills. Moreover, FASTag collections touched all-time highs in April 2022, while the mobility for retail and recreation continued to improve.

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The ICRA Business Activity Monitor revealed that the activity in April 2022 exceeded the pre-Covid levels by a healthy 15.8%. This was driven by GST e-way bills (partly reflecting better compliance), non-oil merchandise exports (partly on account of higher commodity prices), rail freight, electricity generation, steel consumption, ports cargo traffic, etc. However, motorcycle production (-18.6%), scooter production (-14.7%), vehicle registrations (-6.2%), domestic airline passenger traffic (-5%; as per ICRA’s estimates), passenger vehicle production (PV; -4.0%) and diesel consumption  (-1.6%) lagged their pre-pandemic volumes in April 2022, reflecting a combination of supply-side issues for the auto sector, constrained demand amidst high fuel prices and a delayed recovery in the contact-intensive services.

On a discordant note, out of the 14 non-financial monthly indicators, the number surpassing the corresponding pre-Covid level declined to eight in April 2022 from 10 in March 2022, printing in line with the trend in January-February 2022. ICRA noted that the output of scooters and diesel consumption reverted to below pre-Covid levels in April 2022, from above pre-Covid level in March 2022.

Although the YoY growth in the ICRA Business Activity Monitor stood at a high 16.1% in April 2022, this largely reflects the low base related to the onset of the second wave of Covid-19 in India. “The YoY growth of several indicators and the ICRA Business Activity Monitor is likely to rise further in May 2022, given the falling base associated with the growing restrictions in the year-ago period. For instance, vehicle registrations stood at 0.8 million in May 1-16, 2022, translating to a considerable 140% of the subdued year-ago level (and 46% of the April 2022 level). In addition, the YoY growth in electricity demand surged to 20.7% during May 1-15, 2022 from 11.5% in April 2022, boosted by the heatwave conditions prevailing over Northwest and Central India. However, with higher commodity prices seeping into inflation, demand growth may be constrained in the remainder of this quarter. This, in conjunction with a normalising base, could cause the YoY growth in the ICRA Business Activity Monitor to ease to single-digits by June 2022,” said Ms. Nayar.

The ICRA Business Activity Monitor is a composite indicator that comprises auto production (two-wheelers and PVs), vehicle registrations, output of Coal India Limited, power generation, rail freight traffic, non-oil merchandise exports, cargo handled at major ports, consumption of petrol and diesel, finished steel consumption, generation of GST e-way bills, domestic airline passenger traffic, aggregate deposits and non-food credit of scheduled commercial banks.