India's economy has been showing signs of recovery since a record 24% fall in GDP if several high-frequency indicators are to go by. And yet, a closer look suggests that this may not even be a recovery at all, according to HSBC Global Research.
“Consumption is up while investment is down, manufacturing is up while services is down, the formal sector is gaining market share at the cost of the informal sector, and capital markets are buoyant though the banking sector faces many challenges,” HSBC Economists Pranjul Bhandari and Aayushi Chaudhary wrote in a recent research note.
To understand this divergent “multi-speed” recovery seen by India's economy, HSBC Research compiled 30-odd indicators and split them into four quadrants. The first group is where growth picked up during lockdown and still continues to be strong. The second group is where growth is recovering but due to a low base. The third is where growth remains in decline while the fourth is that saw a spurt during the lockdown but is now fading away.
“A cursory glance suggests that about 67% of the indicators are in the top two quadrants, signalling strong recovery,” the note said. “But once weighted by their share in GDP, they make up a smaller 40% of GDP.”
HSBC said that the longevity of India's recovery will depend on how successfully indicators move from quadrant 2 to quadrant 1. Essentially, it will be based on how the recovering sectors continue to recover. “It would also depend on how successfully indicators move from quadrant 3 to quadrant 2, which is to say that the sectors worst hit find some space to grow again.”
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