With the easing of restrictions and the economy entering an Unlock phase from June 1, the high frequency indicators which are coming in have been showing a material improvement as compared to the multi-year lows seen in April. A clutch of indicators including GST collections, railway freight traffic, petrol consumption, peak power demand, electronic toll collections among others have all mirrored the incipient signs of recovery. Though still early, these are indeed promising signs, pointing towards a V-shaped recovery in the immediate aftermath of the lockdown. “In order to nurture the nascent signs of recovery, it is important to mitigate the uncertainties that are currently prevailing regarding the restrictions. Corporates are unable to plan beyond a horizon of a few weeks, affecting all operations”, said Chandrajit Banerjee, Director General, CII.
“Although it is not possible to predict the course of the pandemic, a dashboard approach, triggering predictable responses based on the progression of infections, can reduce uncertainty and boost both consumer and industry confidence, which in turn will support demand and investment recovery”, added Banerjee. Further, in order to ensure that the supply chains function seamlessly across state & district boundaries, including the containment zones, the latter should be limited to micro areas instead of a wider area.
On its part, the government has played a big role in driving the nascent recovery process by providing direct cash & food transfers to the rural & urban poor. “In a significant confidence building measure, it is encouraging to note that the government dues to the industry have started coming in, which are likely to serve as a big and a direct liquidity booster to industry”, highlighted Banerjee. Other marquee schemes announced as a part of the Atmanirbhar stimulus package, such as the Rs 3 lakh crore collateral free loan for MSMEs & other businesses and the Rs 30,000 crore special liquidity scheme for NBFCs/HFCs/MFs have all taken off well, he further added.
It is pertinent to note that the recession staring at us in the current year is different from the previous recorded episodes of recession which were all triggered by a monsoon failure. This year, the agricultural sector has emerged as the beacon of hope for India’s economy. “Apart from normal monsoon & healthy sowing, a slew of government schemes in the form of livelihood interventions, such as expanding the MNREGA program and the Pradhan Mantri Garib Kalyan Rozgar Abhiyan, have supported the rural economy considerably. This has raised hopes of a rebooting of the economy by the rural sector”, commented Banerjee. In addition, interventions by both the Central and State governments to ensure that the lockdowns do not affect the rabi harvest in March and April and the sowing of kharif crop in June, has led to expectations of a bumper agriculture production, he added. Consequently, NBFC sector lending in rural areas has also been as high as 80 per cent of the usual levels.
Apart from the rural sector, there are significant variations in the performance of different sectors. For example, some sectors that have done well, which include pharmaceuticals, FMCG and agriculture. “Consumer facing industries, such as staple based FMCG, are likely to grow at 15-20 per cent in FY 21, primarily on account of an increase in in-house consumption of food and greater demand for sanitation and hygiene products,” Banerjee elucidated. In contrast, sectors such as aviation, hotels and commercial vehicles are still very stressed.
The critical construction sector which has a large employment multiplier impact on economy, is bouncing back too, with most construction sites resuming operations. Commercial real estate is holding up on lease renewals, though new leases are not being signed.
On the services side, IT sector is expected to grow at about 0-5 per cent in FY 21. Companies in this sector are well capitalized with no layoffs expected. While the growth in hospitals is likely to be flat, the crisis has expedited digital health servicing which otherwise would have taken a few years to actualize.
Banerjee concluded by mentioning that even though the early signs of recovery are encouraging, it is critical to build on these, by deploying all the policy levers. Importantly, the business activities must be allowed to function, by removing the uncertainties associated with imposing ‘mini lockdowns’.
