Economic activity up on pent-up demand, may not sustain: ICRA

The pick up in economic activity in October is the result of pent-up demand and may not sustain going ahead, domestic ratings agency ICRA said on Tuesday.

Multiple fast-paced indicators, including GST collections, have been showing a sharp recovery since October, which has also led many analysts to revise their overall GDP forecasts for the fiscal.

"We caution that the spikes in production seen in the various sectors in October 2020, are an exaggeration of the true recovery on the ground, as they have been driven by a large component of pent-up demand that may not sustain after the festive period is over," the agency's Principal Economist Aditi Nayar said.

The factors which remain to be watched are the pace of government spending in the second half of the fiscal, after the unexpected contraction recorded in the September quarter, she added.

The potential re-imposition of restrictions in one or more states on account of a fresh surge in CVID-19 infections, may temper the momentum of recovery in the coming months, she warned.

The agency said that available trends for early November are suggesting some moderation in these spikes in the ongoing month.

In October, 10 of the 17 high frequency indicators tracked by the agency showed a pick-up, including GST e-way bills where growth accelerated to 21.4 per cent as compared to the year-ago period, as against 9.4 per cent in the preceding September.

The agency, however, said it is "circumspect" about the durability of the spike in GST e-way bills after October.

The 8.8 per cent growth in electricity was driven largely by a favourable base, it said, pointing out that the same was down 13.3 per cent in the year-ago period.

It added that subsequently, the growth in electricity demand has moderated to 5.3 per cent in year-on-year terms during November 1-20.