Economic Outlook

While Indian Economy was grappling with slow-down, corona virus pandemic superimposed the downward drift. In FY 2019-20 GDP growth stood at 4.2 per cent as against 6.1% in FY 19, the lowest in the last 11 years. GVA growth for 2019-20 is still lower at 3.9%. The otherwise muted growth to some extent was also impacted by Covid-19 and the lockdown for a few days towards the end of March’2020. Manufacturing & construction sectors dragged down the growth of Industry Segment and services also witnessed slowdown.

Quarterly numbers depict prolonged deceleration in the growth momentum and some impact of lockdown in March 2020.    

Impact of the lockdown and consequent growth contraction will be clearly visible in Q1 of 2021. For FY 21 the growth contraction is being projected between 2% and 6% by various experts. The same however, will depend on the pace of recovery in economic activity and build up of demand, which at present seems to be low due to job losses and drop in incomes, thereby muting spending power of the consumers. The growth numbers for FY21 may only relevant to the extent to which the economy shrinks. What is relevant is the extent of rebound in growth in FY 22. A reasonable assumption may be that level the economy at exit of FY22 will be approximately of the same size as it was in FY20. The pattern across economies globally may be similar. The Economic numbers of FY 21 being an exception may not be used for the comparison of the past or the future years, as if FY 21 did not exist.   

Lower Government revenues coupled with stimulus cost is likely to increase public debt to a high level; estimated by some experts to exceed 85% of GDP, that will give rise to high debt servicing cost, though to some extent will be mitigated by reduced interest rates on incremental borrowings. High borrowings and fiscal deficits leave limited room for the Government for further growth stimulus. Hopefully innovative steps will be initiated by the Government to raise Country’s structural growth rate and to regain the lost growth momentum. Large investments in infrastructure may a key step to spur the growth.

Some of the business Sectors that are at present negatively impacted by the pandemic: 

• Aviation, Hotels, Restaurants, Food Chains, CVs, Passenger Cars, Two Wheelers, White Goods etc
• Sectors that are actively engaged in trade with China such as Parts of mobile phones, Integrated circuits, Solar panels, Lithium batteries, Laptops, Antibiotics, Urea, DAP, Iron and Steel Products, Auto Parts,P-xylene, Light Oils, Polyethylene, Cotton, Iron Ore pallets etc.       

Opportunities

History of pandemics and wars reveal a very fast economic recovery after the crisis is over, as happened after Spanish Flue Pandemic of 1918 or Second World War and the period of crisis brings about a lot of innovation both in the field of technology and the businesses practices. Such innovations generally improve efficiencies, cost controls, growth rates which is somewhat already visible from the evolving practices such as WEH. On an optimistic note we may assume that once treatment of Covid19 is invented, speedy economic recovery will emerge with new normal and improved efficiencies. Some businesses may turn sick or close down. As a general rule, the businesses with strong balance sheets, will survive and grow after the Pandemic is over in a relatively lesser competitive environment. Future course of economies, as of now, is shrouded with uncertainties and will evolve as the circumstances unfold in future. 

For some sectors, the contagion provides a fertile ground for bleeding edge innovation that is likely to become the norm in a post Covid-19 world. Some sectors that are growing in the current environment: 

E-Education: Online learning has emerged as a most viable tool for education. Virtual classes have become a norm instead of novelty, that too at much lower cost.

E-Retail: Lockdown is encouraging consumers to switch to online grocery shopping. Most players in the sector are witnessing 20% 80% surge in demand. Online grocery is likely to be a sunrise sector in long term, even after Covid-19.

BFSI: Time is opportune for players in the BFSI space to reinvent themselves and test newer business models that are more digitally-driven. 

Medical: Disinfectants, Sanitisers, Fitness, Nutrition, Wellness and Ayurvedic products are recording high sales – the trend may get ingrained in consumer behavior and such products may continue to remain in demand even after Covid-19. Online medicine delivery and teleconsulting may rise even further in the future.  . 

Healthcare: We might also see more healthcare-oriented investment from private and public sectors as the country enhances its healthcare infrastructure. Thus essential healthcare services will become more accessible and a number of employment opportunities will emerge.

IT/ITeS : As top Corporates reduce their IT spending due to the COVID-19 outbreak, Indian IT companies can leverage their low cost proposition and offer services at competitive prices. The sector can also capitalize on the increasing digital opportunities.  
Cooling –off in Crude Prices: will benefit FMCG companies and Tyre manufacturers
Battery Manufactures: To benefit from lower lead cost.

Many other Industries may be benefitted from the opportunities opened by the current crisis.

Commencement of Activities after Forced Suspension

Data points of May’20 are indicating incipient signs of recovery, although regaining pre-covid levels largely remain uncertain. 

• Rural activities appear to be relatively resilient. Contraction in Tractor sales has reduced considerably in May’ 20 as compared to April’ 20.
• Increased currency in circulation, apparently due to government spending, may spur demand in the coming months.
• Manufacturing PMI in May’2020 inched up to 30.8 from 27.4 in April’ 20. 
• YoY contraction in exports reduced in May’ 20 to 34% as compared to 52% April’2020. 
• Services sector PMI increased to 12.6 in May’2020 compared to 5.4 in April’2020. 
• Petrol and diesel consumption improved in May’20 from the level previous month. 
• Due to slow down in retail credit, Non-food credit growth slowed to 5.5% YoY in May’2020 from 6.7% April’2020.
• Bank Deposits registered growth of 9.7% YoY, and credit to deposit ratio to declined to 73.9% from 74.9% due to slower credit growth. The sharp downward adjustment in the credit to deposit ratio bodes well for transmission. 
• Sales of Passenger Vehicles and Two Wheelers and commercial vehicles have commenced but yet to see an effective recovery.