A Foray into tracking Economic Activities in Covid time through the Lens of High Frequency Indicators

The study has constructed a coincident composite index of economic activities on a monthly frequency and attempted to fill the data gaps towards proper assessment of the economy on a real time basis. In the backdrop of the COVID-19 induced GDP contraction in Q1:2019-20 and the subsequent recovery that has set in, this study sets out to construct activity indices for the different components of demand: rural consumption, urban consumption, investment and other sources of demand, based on monthly data on 30 high-frequency indicators (HFIs) for the period from January 2016 to February 2021 using the principal component (PCA) analysis. Based on the analysis, it is observed that in September 2020, except for tractor sales and fertilizer sales, all the indicators in rural sector displayed an upward trend, implying better recovery. Even though demand recovered sharply and immediately in May 2020, the pace of recovery started to wane post June, with each passing month. Although there was some downturn in urban consumption demand in August, the former witnessed an upturn in September, mainly due to the relaxation of Covid-19-related restrictions. Investment demand after showing a V-shaped recovery in May, lost momentum but picked up sharply in September. General economic activities index was the slowest to recover post April and more so beyond June so far. The overall composite index of economic activity in India suggests that economic growth has bottomed out in April 2020 when activity went down by around 87 per cent from the pre-Covid-19 level. It is observed that economy started recovering after April due to resumption of economic activity in certain parts of the country after the relaxation of Covid-related restrictions in some states. However, although the economy started recovering after September 2020, due to resurgence of Covid-19 pandemic in February 2021, the pace of recovery has halted, which hints at a higher uncertainty in the economy going forward.