Brisk Covid vaccination rate primes Indian economy for acceleration

India’s economy showed signs it’s ready to accelerate, thanks to its services sector resuming expansion and manufacturing activity retaining growth momentum in August.
 

Two of the eight high-frequency indicators tracked by Bloomberg News gained speed last month, while five held steady and one slowed. The needle on a dial measuring so-called animal spirits, however, remained unchanged from the July level, as the gauge uses three-month weighted average to smooth out volatility in single-month readings.

The monthly expansion in services and manufacturing activity coincided with relatively low new Covid-19 cases and a pick up in the pace of vaccinations -- more than 834 million doses have been administered so far in the nation of 1.3 billion people. That said, less than a fifth of the population is fully vaccinated and risks of a third wave of infections persist.

Here are the details of the dashboard for August:

Business Activity

Factory managers in India reported growth in new orders last month, helping businesses retain their optimistic growth projections. A similar survey of services’ purchasing managers showed the return of business confidence amid easing virus curbs. That catapulted the composite index to expansion territory for the first time in four months.

Exports

Exports rose at a steady pace of about 46% year-on-year in August, although the high growth has been mainly due to the effect of a contraction in the year-earlier period. Data from other export powerhouses showed a varying trend, with South Korea reporting faster export growth and Vietnam seeing a sharp decline due to disruptions caused by Covid outbreaks.  

Consumer Activity

Retail auto sales, a bellwether of consumer demand, showed a mixed trend. While passenger vehicle sales grew year-on-year, two-wheeler sales -- an indicator of animal spirits in smaller towns -- declined.

Bank credit grew 6.7% in August from a year earlier, picking up a tad from the 6.5% level seen in mid-July, central bank data showed. Liquidity conditions remained surplus last month, implying room for better credit off-take.

Industrial Activity

Industrial production expanded 11.5% in July from a year earlier -- a relatively slower pace compared with the first three months of the fiscal year that began in April, and attributable to the wearing off of a favorable base effect.

Similarly, output at infrastructure industries, which makes up 40% of the industrial production index, expanded 9.4% in July, with demand for coal, natural gas and cement driving activity. Both data are published with a one-month lag.

--With assistance from Don Ong and Muneeza Naqvi.