Before a coronavirus vaccination drive picked up the required momentum to provide a significant level of protection for a population that was heavily exposed to the virus, with widespread infections and illness, many doubted India’s economic recovery and growth forecasts. A second coronavirus wave, worsened by a significantly more transmissible double mutation variant thought to be behind the sudden surge in cases, not only overwhelmed hospitals, but also brought despair to economic activity.

The scenario has however, largely improved, not just from a health perspective but also from an economic viewpoint.

The International Monetary Fund (IMF), previously forecasting double-digit economic growth for the world’s most populous country, retained its more recent projections, that of a 9.5 per cent growth in the current financial year. The affirmation comes despite moderately scaling down its forecast for the global growth in 2021 by 10 basis points to 5.9 per cent, in view of worsening coronavirus dynamics and supply disruptions.

In October, leading economic figures, such as PMI readings – an indicator of economic health for manufacturing and service sectors, revolved in expansionary territory amid an improved scenario surrounding the pandemic.

Manufacturing and Service PMIs head higher

In October, India's factory activity maintained its recent upward trajectory, recording an expansion, following a relatively gloomy period of contraction witnessed in Q2. India’s Manufacturing PMI rose to 55.9 from 53.7 a month earlier and above market estimates of 54. The reading pointed to the fourth straight month of expansion and the strongest growth since February 2021, as companies scaled up production in line with a substantial upturn in new work intakes.

A reading above the 50 mark indicates an expansion.

Output and new orders have over the period expanded at the fastest rates in seven months. Notably, new orders expanded amid reports of improved market confidence, higher requests amongst clients, and successful marketing. In addition to reporting a substantial increase in total new orders, Indian companies observed a notable pick-up in international demand for their goods. New export work rose at a solid pace, the quickest in three months. From a pricing standpoint, data showed that input cost inflation surged to a 92-month high. Anecdotal evidence highlighted higher chemical, fabric, metal, electronic component, oil, plastic and transportation costs, while selling prices rose only moderately. This, as only some firms opted to only pass part of the additional cost burden onto their clients. The vast majority left their fees unchanged. Business optimism rose to a six-month high.

India Services PMI jumped to 58.4 in October from 55.2 reported in September and notably higher than market expectations of 55.7. The latest Services PMI reading pointed to the third straight month of expansion in the sector, and the strongest growth in ten-and-a-half years amid further easing of mitigation measures, previously employed to mitigate the spread of the virus.

Output in October grew at the fastest rate in over a decade, while new work intakes increased at a sharp and accelerated pace, the strongest since July 2011. Consequent to the growth envisaged, job creation, albeit marginally, rose for a second consecutive month. Meanwhile, new export business decreased during the month, a trend that has been recorded since the coronavirus outbreak. Price pressures intensified in October. Notably, input price inflation accelerated to a six-month high, due to higher fuel, material, retail, staff, and transportation costs. Output price inflation was moderate in comparison, but nevertheless the strongest since July 2017. Looking ahead, business sentiment among companies was little-changed from September, well below its long-run average. Some firms expect sales and output to increase as the pandemic recedes. Others were concerned about the impact of inflationary pressures on the recovery.

Coronavirus infections significantly subside

Over 290,000 people have died in the past seven months, since the country has been hit by a devastating second wave that overwhelmed health systems and caused acute shortages of medical supplies. Albeit such a high figure, the trajectory has significantly improved.

Newly confirmed coronavirus infections are steadily declining because of renewed vaccination efforts – giving rise to an increased level of antibodies among the population, and regional lockdowns, imposed to contain the spread of the virus, according to public health experts.

India’s seven-day moving average of new daily infections has now fallen to below 13,050, down from a peak of 391,000 in early May. Meanwhile the number of daily deaths fell to below 502 from 4,896 – a figure noted at the pandemics peak.

While the absolute numbers have markedly improved, the accuracy of such figures remains unknown. Coronavirus testing particularly in the rural areas, albeit showing signs of improvement, remain below set targets.

Vaccination programme gaining traction, surpassing the one billion mark

Hindered by hesitancy among the population and vaccine shortages, despite being home to the Serum Institute of India – the world’s leading jab manufacturer, India’s vaccination rollout initially proved sluggish.

A notable improvement was however witnessed, particularly as demand for vaccinations surged as the highly transmissible Delta variant spread.

India has in recent days administered its billionth coronavirus vaccine. To date, about 24 per cent of Indians are fully inoculated and 53 per cent have received at least one dose – a notable level of protection for a population that was heavily exposed to the virus. Prime Minister Narendra Modi’s government hopes that such improved immunisation level will put aside painful memories of this year’s devastating second wave.

Disclaimer: This article was written by Christopher Cutajar, credit analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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