30th Nov 2020 : Sanjeeva Shivesh
The latest GDP numbers are a pleasant surprise. The uptick is sharp for a period (July to September) when Covid was also rising sharply in India. This validates that “Unlock 1.0, 2.0 and 3.0” has paid handsomely. That means, more than Covid, it was the ‘hard lockdown’ in India that battered the economy severely in Q1.
Though, the question remains – are we really out of the negative cycle? In the festive season, retail e-commerce performed exceedingly well, automotive production was high but dealer sales not so buoyant, fuel consumption rose and GST collections showed healthy recovery. As winter settles, there are headwinds. Loan moratorium is over and farmers unrest looms large over the impending Rabi season, we look at the Indian economic scenario for the CY2021.
Nine Major Trends
Following key trends shall impact the economy in the CY2021.
1. India seems to have flattened-the-curve. But, possibility of second wave remains, if it isn’t already there. Considering how India has learnt to live with Covid19, the overall economic impact should be in 3% to 5% range, in the event of a second wave.
2. Job losses and wage correction will continue to affect incomes. As per estimates, there are more than 1 crore people have been without job for more than 6 months. Further, about 1.5 to 2 crore daily wage earners have had wage reset of average 20% in last 6 months. That means it impacts at least 5 crore people. Consumption to remain affected.
3. Average ticket size of spending to remain suppressed. Price corrections, discounts and buyback offers shall be the new norm.
4. Discretionary spending to remain down. Services sector most affected. Travel, Tourism, Restaurants, Entertainment, Fashion, Beauty and Salons down.
5. Tax collections are down. It is expected to remain down in CY21 also. That means, gross fixed capital formation shall be affected due to reduction in government spending, even as fiscal deficit and government borrowings rise. There is possibility of rise in interest rates, which poses a risk for the economy.
6. Foreign capital is looking positive for India. Anti-China sentiments would help. That should bring long term investments next fiscal.
7. Big get bigger. MSMEs, Startups and other companies, with less cash cushion, high debt levels and low margin will continue to struggle.
8. Real estate economy has huge inventory. Expect corrections, first in commercial real estate and also in housing segment.
9. Digital disruption will continue. Health, Safety and Data spend is looking up.
GDP Outlook for FY20-21
Economic headwinds remain. The impact of loan repayments in absence of moratorium could hit consumption. Weakness in capital formation shall impact growth in the next 4 quarters. We expect Dec-20 quarter growth to report at about 1% growth over Dec-19. That happening, Mar-21 could report about 2% growth over Q4-20 and the FY20-21 should close overall about 7% below FY19-20