‘Economic activity resurged to a post-COVID peak last week’

Nomura India economists flag supply side risks including coal, power situation

Economic Activity in India hit a fresh post-pandemic high last week, the Nomura India Business Resumption Index signalled, with most indicators showing improvements even as power demand declined from the previous week.

The index rose to an all-time high of 108.8 for the week ended October 17, from 105 in the prior period, Nomura said in a statement. A reading of 100 on the index, which uses February 23, 2020, as its base, relates to the pre-pandemic economic activity level.

While the mobility level rose sharply, and the labour force participation rate inched up to 41.6% from 40.4%, power demand slid 1.7% after a 0.3% uptick in the previous week, Nomura’s research economists Sonal Varma and Aurodeep Nandi wrote in a note on the latest index reading.

The economists, however, raised concerns about supply side risks, including the coal and power situation in India. Last week, Nomura had warned that if power outages became more widespread, then industrial output could suffer.

“Even as demand is recovering, supply bottlenecks have emerged as a bigger constraint. Coal shortages are resulting in supply disruptions to non-power customers, while chip shortages have hurt passenger vehicle sales during the festive season. As supply struggles to tango with demand, we see higher inflation as a bigger risk,” they noted.

With domestic flights allowed to operate at full capacity from Monday, the transportation sector would get a further boost, the Nomura economists pointed out. Though the pace of vaccination had fallen in October, India would cross the milestone of administering one billion vaccine doses this week, they noted. The vaccine coverage was enabling reopening and had boosted mobility.

The Nomura India Business Resumption Index also relies on the seven-day moving average of mobility data from Google and Apple, power demand figures and the labour force participation rate, along with other indicators.

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