Data released by the Centre for Monitoring Indian Economy on May 17th showed that the employment rate (the share of the working-age population that is employed) averaged 36.2% for the two-week period ending May 16th, down slightly from 36.7% in the previous two-week period.

The data are in line with our expectation of a general weakening of economic activity in May, as lockdowns remain in place in a number of states. However, the impact of these restrictions on real GDP will continue to be limited relative to the blanket nationwide lockdown imposed in April-May 2020. Since our previous update on high-frequency indicators, mobility and economic activity indicators have deteriorated further. As at May 12th visits to retail and recreational establishments were 63% below the pre-pandemic baseline, compared with an 80% drop in the year-earlier period. Visits to workplaces show similar weakness. However, we believe that the link between mobility and activity has weakened significantly as consumers and businesses have adapted to restrictions.

While economic activity is subject to less severe disruption than during the same period last year, the negative impact of ongoing restrictions has increased in May relative to April. Electricity consumption slowed in early May and has contracted by an average of 7.2% since May 11th relative to the same period in 2019. This probably reflects the disruption of industrial activity, as commercial usage accounts for half of India’s electricity demand. We believe that the staggered application of less stringent restrictions in states that have gone into lockdown has blunted the impact on overall economic activity.

The employment rate has also fallen slightly but remains significantly higher than 29% in the same period last year. The indicator is artificially supported by disguised unemployment, especially in the agriculture sector, but we do not expect that effect to be especially strong. Despite some early indications that daily infections have peaked in India, we expect local administrations to refrain from easing restrictions prematurely in order to preserve the declining trend. Consequently, we expect the disruption to linger in the coming weeks.

The latest data are in line with our expectation that real GDP will contract by 5.9% quarter on quarter in seasonally adjusted terms in April-June, compared with 26% in the year-earlier period. For fiscal year 2021/22 (April-March) we expect real GDP to grow by 10.4%, after a contraction estimated at 7% in 2020/21.

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