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Economic Outlook
ANALYSIS 20 JUL 2020 09:08 PM

Weak domestic demand

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10
5
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-15
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-25
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-45
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-55 Index of industrial production (Y-o-Y % change)
-60 Non-POL non-gold and silver imports (Y-o-Y % change)
-65
Apr 19 Jun 19 Aug 19 Oct 19 Dec 19 Feb 20 Apr 20 Jun 20
Month
Centre for Monitoring Indian Economy Pvt. Ltd., 20 Jul 2020

July 2020 Review of Indian Economy: Sectoral Performance

by Yash Shah

Good rainfall leads to higher acreage

In the ongoing kharif season, sowing has commenced strongly owing to timely rains. In the
southwest monsoon season, till July 15, 2020, India received cumulative rainfall of 328.9
millimeters. It is ten per cent above the long period average (LPA). 43 per cent of the
country’s area received normal rainfall, 35 per cent received excess rainfall and 22 per cent
received deficient rainfall.

Till July 17, 2020, total kharif acreage recorded a year-on-year (y-o-y) increase of 21.2 per
cent. 16 out of 19 major crops showed a y-o-y increase in acreage. 65.1 per cent of normal
area has been sown till July 17, 2020, compared to 53.7 per cent area sown during the
corresponding period in the previous year.

Acreage under rice was up by 18.6 per cent to 16.8 million hectares. As per reports, states
like Punjab, Chhattisgarh, Andhra Pradesh and Tamil Nadu, are attempting to sow paddy by
direct-seeding of rice (DSR) instead of transplanting rice seedlings from a nursery to
waterlogged fields. Till July 6, 2020, more than 20 per cent of targeted rice area under
Punjab was sown using DSR method. Area sown using DSR technique is expected to
increase. DSR method requires less labour and less water. Farmers were forced to move to
DSR to combat the labour shortage caused by displacement of migrant workers.

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Area sown under pulses and oilseeds was up by 32.4 per cent and 40.8 per cent,
respectively. 85.2 per cent of normal area under oilseeds was sown till July 17, 2020,
compared to 60.5 per cent area sown during the corresponding period in the previous year.
Sugarcane acreage too was up by 0.9 per cent. Till July 17, 2020, cotton acreage increased
by 17.3 per cent.

As on July 16, 2020, the level of water storage of 123 reservoirs in India was up by 56.9 per
cent on a y-o-y basis. Kharif sowing in India is majorly carried out in the months of July and
August. Hence, normal rainfall and higher reservoir levels augur well for the agriculture
sector.

Progress of Sowing of Kharif Crops (As on 17 July 2020)

Actual Area (mln Actual area sown as % of % change in actual

 
hectares) normal area

  2019 2020 2019 2020 2019 2020

 Total crops 57.1 69.2 53.7 65.1 -6.3 21.2

  Foodgrains 30.7 36.6 43.5 51.9 -9.3 19.2

    Rice 14.2 16.8 35.9 42.5 -7.9 18.6

    Coarse
10.3 11.6 54.7 61.4 -6.4 12.2
cereals

     Maize 5.8 6.4 78.0 86.1 5.0 10.4

     Jowar 0.9 1.0 42.1 45.6 -23.5 8.3

     Bajra 3.2 3.7 43.5 49.8 -17.3 14.5

     Others 0.3 0.4 18.6 25.0 -5.0 34.1

   Pulses 6.2 8.2 51.5 68.1 -16.6 32.4

     Arhar 2.2 3.1 52.1 71.7 -15.3 37.7

     Other
3.9 5.1 51.1 66.1 -17.3 29.3
pulses

  Sugarcane 5.1 5.1 105.2 106.2 -2.3 0.9

  Oilseeds 11.0 15.5 60.5 85.2 -7.5 40.8

     Soyabeans 7.9 11.0 71.2 98.6 -11.5 38.5

     Groundnuts 2.4 3.8 56.6 88.7 6.1 56.6

     Others 0.7 0.7 23.8 26.3 0.7 10.8

   Cotton 9.6 11.3 79.7 93.4 3.9 17.3

IIP declines at a slower rate in May

Industrial activity fell by 34.7 per cent on a y-o-y basis in May 2020. After plummeting by
57.6 per cent in April, the extent of the fall narrowed in May. Compared to April, production
picked up across all sectors and sub-sectors within IIP.

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Mining & quarrying sector and electricity sector were exempt from the lockdown. As a
result, they suffered a lower fall in April and May 2020. In May, electricity generation came
close to its pre-lockdown levels. The index of electricity generation was 149.6 in May
compared to 125.5 in April and 146.9 in March.

Manufacturing index practically doubled from 41.5 in April to 82.4 in May 2020.
Manufacturing activity is still far from its pre-lockdown levels. Before the nationwide
lockdown was announced from end of March, average manufacturing index between April
2019 and February 2020 was 131.2.

In April, all 23 sub-sectors within the manufacturing sector recorded a fall in production. In
May, 22 out of 23 sub-sectors recorded a decline in production. Manufacture of
pharmaceuticals, medicinal chemical and botanical products which had declined by 53.9
per cent in April, recovered and recorded 2.5 per cent growth in May 2020. During April
2020, 40 per cent of the manufacturing sector declined by more than 75 per cent on a y-o-y
basis. In May, sectors accounting for 60 per cent of the manufacturing sector fell by less
than 50 per cent.

When classified on the basis of end-use, capital goods production recorded a y-o-y decline
of 64.3 per cent to 37.1 in May 2020. The index has been contracting on a y-o-y basis since
January 2019. Investment activity was falling even before the pandemic was hit. Due to the
lockdown, capital goods production fell abysmally and was one of the worst hit sectors.
Average capital goods index between April 2019 and February 2020 was 95.2.

Consumer durables index contracted by 68.5 per cent on a y-o-y basis in May 2020.
Domestic demand in the auto industry continued to fall in June 2020, as per data released
by the Society of Indian Automobile Manufacturers (SIAM). In June 2020, domestic sales of
passenger vehicles and two wheelers declined by 49.6 per cent and 38.6 per cent,
respectively. As per reports, urban areas have been more impacted by Covid-19 and rural
India is witnessing a faster recovery. People are buying more small cars to avoid public
transport. Market leaders Maruti Suzuki and Hyundai Motors say that enquiries and
bookings are on a steady rise.

As the economy is gradually unlocking, industrial activity is picking up. Despite the extent of
the fall reducing, production is still far from reaching pre-lockdown levels.

Index of Industrial Production (Y-o-Y % change)

  Weight Mar 20 Apr 20 May 20 Apr-May

          2019 2020

IIP 100 -18.3 -57.6 -34.7 3.8 -45.8

  By economic activity            

    Mining & quarrying 14.4 -1.4 -27.0 -21.0 3.7 -24.0

    Manufacturing 77.6 -22.4 -67.1 -39.3 3.5 -52.7

    Electricity 8.0 -8.2 -23.0 -15.4 6.7 -19.0

  By usage            

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    Primary goods 34.1 -4.1 -26.6 -20.0 3.6 -23.2

    Capital goods 8.2 -38.3 -92.6 -64.3 -1.8 -77.9

    Intermediate goods 17.2 -18.5 -65.4 -44.1 7.8 -54.1

    Infra/constn goods 12.3 -25.2 -84.7 -42.0 1.2 -62.6

    Consumer goods 28.2 -27.0 -69.1 -36.0 4.3 -52.1

      Durables 12.8 -36.5 -96.0 -68.5 1.2 -81.9

      Non-durables 15.3 -20.2 -48.7 -11.7 6.8 -29.6

India records a trade surplus in June

India recorded a trade surplus of USD 0.8 billion in June 2020. This was the first time since
January 2002 that India was a net exporter. Foreign trade shrunk immediately upon
imposition of the lockdown. In April 2020, when the imposition was in its strictest phase
across the nation, imports and exports both declined by around 60 per cent. As India
resumes operations slowly, exports are recovering at a much faster pace than imports.
Trade is still lower than it was a year-ago, but the extent of fall is shrinking. Exports
narrowed the fall well in May and June. The extent of the fall in exports was restricted to
12.4 per cent on a y-o-y basis in June 2020. Imports, on the other hand, narrowed the gap
only very marginally. It fell by a substantial 52.4 per cent in May and 47.6 per cent in June
2020.

Owing to a sudden brake in global transportation activity, Brent crude prices in April 2020
had fallen to its lowest level since 1999. Consequently, India’s crude and petroleum
products (POL) imports at USD 3.5 billion during May 2020 was the lowest since 2005. POL
imports fell by 72.3 per cent on a y-o-y basis in May 2020. As per Petroleum Planning and
Analysis Cell (PPAC), quantity of POL imports declined by 19.1 per cent in May. Indian
refiners were hit by a fall in domestic demand due to the lockdown. As per reports, Indian
refiners in April increased their stocks by purchasing cheaper oil, sold cargoes to the
government for strategic reserves and declared force majeure on crude imports. Crude oil
prices are on an upward trend since May 2020. India’s POL imports rose to USD 4.9 billion
in June 2020. Contraction in POL imports was restricted to 55.3 per cent during the month.

Gold imports declined by more than 90 per cent for April and May 2020. Price of the yellow
metal continued to sky rocket in June 2020 and the price of London bullion stood at USD
1,732.2 per troy ounce. Gold imports fell by 77.4 per cent in June 2020.

Non-POL non-gold & silver imports declined by 41 per cent on a y-o-y basis in June 2020.
Principal commodity groups which accounted for approximately 70 per cent of non-POL
non-gold & silver imports declined by more than 30 per cent during June 2020. These items
include coal, coke & briquettes, organic & inorganic chemicals, electrical & non-electrical
machinery, electronic goods among others.

Exports of 12 out of 30 major commodities recovered to record y-o-y growth during June
2020. The growth majorly comes from agricultural commodities, iron ore and drugs &
pharmaceuticals. Exports of leather & leather products and readymade garments declined
by more than 60 per cent in May 2020. The extent of contraction in exports of these labour
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intensive sectors reduced during June 2020. During June 2020, exports of leather products
and readymade garments declined by 40.5 per cent and 34.8 per cent, respectively. POL
exports declined by 31.6 per cent in during the month.

Export & Imports

  Apr 20 May 20 Jun 20 Apr-Jun

        2019 2020

USD billion          

  Trade balance -6.8 -3.1 0.8 -46.0 -9.1

    Exports 10.3 19.1 21.9 81.1 51.3

    Imports 17.1 22.2 21.1 127.0 60.4

Y-o-Y % change          

  Total exports -60.5 -36.2 -12.4 -1.2 -36.8

    POL -62.3 -66.9 -31.6 -2.4 -59.1

    Non-POL -60.2 -30.1 -10.1 -1.0 -33.0

  Total imports -59.6 -52.4 -47.6 -1.3 -52.4

    POL -59.7 -72.3 -55.3 0.1 -62.5

    Non-POL -59.6 -45.1 -44.7 -1.8 -48.6

     Gold & silver -97.5 -92.0 -76.0 28.5 -89.9

       Gold -99.9 -98.4 -77.4 35.6 -94.0

       Silver -58.5 -12.5 -67.1 -18.6 -45.2

     Non-POL, non-gold & silver -53.6 -36.7 -41.0 -5.3 -42.2

Slump in cargo traffic continues

Revenue earning freight traffic on Indian railways declined for the fourth month in a row
during June 2020. Railways freight traffic bottomed during April 2020. Traffic declined by
35.3 per cent on a y-o-y basis during the month. The degree of contraction reduced in June
where freight traffic fell by 7.7 per cent. During the lockdown, coal continued to stay the
major commodity transported through the Railways. Yet the recovery in overall freight
traffic during May and June cannot be attributed to coal. Coal traffic declined by 30.6 per
cent in May 2020. The extent of contraction was restricted to 23.1 per cent in June 2020.
Traffic of steel, cement, foodgrains, fertilisers, POL products led the uptick in railway traffic
during June 2020. Cement and foodgrains traffic recorded double digit y-o-y growth during
the month.

According to tentative data released by Indian Ports Association (IPA), traffic at major ports
was 49.1 million tonnes during June 2020. Traffic in June declined by 14.5 per cent on a y-o-
y basis. Traffic at major ports had declined by 21.1 per cent in April 2020. POL, coal, iron ore
and containerised cargo account for around 80 per cent of total traffic handled at major
ports. Value of iron ore exports have jumped by more than 60 per cent on a y-o-y basis in

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May and June since India has been able to grab an opportunity and export low grade iron
ore to China. Reflecting this trend, iron ore traffic at major ports improved by 25.9 per cent
in June 2020. Traffic of thermal coal, coking coal and containerised cargo declined by more
than 20 per cent during the month. 16 million tonnes of POL traffic was recorded in May
2020. POL traffic in June did not improve and stood at 15.9 million tonnes.

Civil aviation industry in India is among the worst hit, due to the coronavirus pandemic.
Domestic flights for travel of passengers were completely shut during the month of April
2020 and most of May 2020. From May 25, 2020, domestic airlines were allowed to resume
operations in a staggered manner. International passenger flights to USA, UAE, France and
Germany might resume soon but it is far from normalcy. As per data released by Airports
Authority of India (AAI), passengers handled fell by 99.8 per cent in April and 97.5 per cent
in May 2020. According to data released by DGCA, domestic passengers carried in June
2020 were 83.5 per cent lower than the passengers carried in the corresponding month last
year.

Cargo Traffic via Various Modes of Transport (Y-o-Y % change)

  Feb 20 Mar 20 Apr 20 May 20 Jun 20

Railway freight traffic, of which 6.5 -13.9 -35.3 -21.3 -7.7

  Coal 1.3 -14.4 -34.5 -30.6 -23.1

  Iron ore 15.7 5.7 -31.7 -29.0 -6.5

  Cement 20.4 -26.3 -90.6 -8.0 18.7

  Container service 8.5 -11.4 -14.3 -19.3 -16.0

  Other goods 6.1 -18.6 -51.6 -3.6 36.8

Traffic at major ports*, of which 4.6 -5.3 -21.1 -23.3 -14.5

  POL 5.1 -4.1 -13.9 -15.5 -14.7

  Containerised cargo 1.3 -10.5 -33.8 -34.0 -22.2

  Coal -1.5 11.3 -14.3 -43.6  

  Iron ore 58.5 10.0 -4.6 22.3 25.9

  Other miscellaneous cargo 1.1 -15.6 -41.4 -35.9  

Traffic at airports          

  Passengers handled 7.1 -37.8 -99.8 -97.5  

  Cargo handled -1.2 -32.0 -82.9 -67.7  

* data for June 2020 is tentative

Recovery in demand for energy

Performance of energy sector has surpassed its March 2020 levels in June. Demand for
electricity touched 105.6 billion KwH in June compared to 99.4 billion KwH in March.
Consumption of petroleum products improved to 16.3 million tonnes in May compared to
16.1 million tonnes recorded in March.

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Gross generation of electricity from utilities declined by 11.9 per cent on a y-o-y basis in
June. Contraction of coal based generation of electricity narrowed from 32.5 per cent in
April to 20.5 per cent in June. Thermal generation from diesel, lignite & gas and hydro
based generation of electricity recorded double digit y-o-y growth. 14 states accounting for
43.6 per cent of total generation recorded y-o-y growth in gross generation in June. Due to
spatial variations of the lockdown restrictions, major industrial states of Maharashtra and
Tamil Nadu continued to record a fall in generation during June.

Fall in power generation slowed down to 1.5 per cent on a y-o-y basis during July 1 to July
14, 2020.

During June 2020, demand for petroleum products used as cooking fuel and for
infrastructure & construction activities has picked up more than demand for auto fuels. 7
out of 12 commodities accounting for 39.5 per cent of total consumption recovered and
recorded a y-o-y growth in demand. LPG is majorly used for domestic consumption as
cooking gas. Its consumption recorded double digit y-o-y growth throughout the April -
June 2020 period. Distribution of free cylinders under Pradhan Mantri Ujjwala Yojana
(PMUY) has boosted LPG consumption. High speed diesel is used in transportation and as
fuel for industrial & agricultural activities. 6.3 million tonnes of high speed diesel were
consumed during June 2020. Consumption of high speed diesel in June crossed
consumption levels of March 2020 and inched close to its pre lockdown levels. Average
monthly diesel consumption between April 2019 and February 2020 was 7 million tonnes.
Demand for petroleum coke, bitumen & asphalt and naphtha was higher in June 2020
compared to the corresponding year ago period.

Energy Sector Performance (Y-o-Y % change)

  Apr 20 May 20 Jun 20 Apr-Jun

        2019 2020

Gross generation of electricity*, of which -25.8 -17.6 -11.9 6.4 -18.3

  Coal -32.5 -24.0 -20.5 4.8 -25.6

  Hydro -8.6 -0.4 19.0 25.1 4.3

  Nuclear 17.4 0.4 -8.7 11.2 2.1

Petroleum products’ consumption, of which -45.8 -23.1 -7.8 1.1 -25.8

  High speed diesel -55.5 -29.4 -15.4 2.2 -33.3

  Motor spirit -60.4 -35.3 -13.6 10.1 -35.9

  LPG 12.0 12.6 15.8 -1.7 13.4

  Petroleum coke -50.7 -29.8 7.9 -0.9 -28.3

  Naphtha -9.8 35.9 18.2 -15.5 13.6

  Aviation turbine fuel (ATF) -91.4 -83.7 -65.8 -4.1 -80.3

* from conventional sources (utilities)

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