India Inc treads on thin ice as recovery prospects get cloudy, CFO News, ETCFO

Even business decisions regarding supply chains are going to be under enormous stress. A recent Ficci survey showed that India Inc’s business confidence has been severely hit and muted expectations have pulled down the overall business confidence index by 20 points.With doubts emerging over the severity of the Covid crisis and recovery, economists and analysts are cutting their growth forecasts.

This has put a question mark on India Inc’s growth prospects this year.

Contrary to the expectations that the second Covid wave will be less harsh than the first one, given the strength in fourth-quarter numbers, the uncertainty over the future has led to analysts slashing forecasts

Sales down

Sales of automobiles, televisions, air conditioners, smartphones, refrigerators and washing machines fell sharply in May, with the Covid second wave and the ensuing local lockdowns disrupting both production and retail channels, as consumers cut back spending.

Industry executives across sectors though expect June to see some recovery as states start easing lockdown restrictions and the tidal wave of infections recedes.

While sales of TV sets, air-conditioners, refrigerators and washing machines in May plunged 65% over April, smartphone sales fell well over 30% sequentially to around 5.5-6 million units.

With a majority of auto retail outlets shut and production curtailed at manufacturing units, passenger vehicle makers dispatched about 103,000 units last month – nearly a third of the 286,728 vehicles sold in April 2021, as per industry estimates. Several leading manufacturers suspended operations to divert industrial oxygen for medical purposes, which also contributed to the sharp sales fall last month.

If uncertainty persists the damage could potentially be worse because we should not expect the same recovery that we saw last yearUncertainty reigns

According to former Planning Commission member Pronab Sen, the damage caused by the first wave was easily calculable and limited, Sen believes, adding that this time around it is much more complex.

If uncertainty persists the damage could potentially be worse because we should not expect the same recovery that we saw last year where when the lockdown was lifted, there was a sharp recovery that took place, Sen said, according to an ET report. “It will not happen this time around because there are no triggers like the lifting of lockdown,” he said.

Even business decisions regarding supply chains are going to be under enormous stress. A recent Ficci survey showed that India Inc’s business confidence has been severely hit and muted expectations have pulled down the overall business confidence index by 20 points.

Rural economy hit

In the first Covid wave, the rural economy had not been impacted much as the case spread was low.

With a more muted rural support (compared to last year), ongoing supply-side disruptions (especially labour supply) and an extension of the lockdowns in major states, we expect GDP growth at 10% for FY22, revised down from our earlier estimate of 11.5%.Care Ratings said in a report
As per India Ratings and Research Ltd, carpenters, blacksmiths and vehicle repairmen, as well as construction, transport and storage workers in villages, require high levels of physical contact. Many poor families may not even have healthy adults to take advantage of NREGA of guaranteed community work, where the government pays the wages. Despite record agricultural production, rural demand could remain muted.

There’s no sign of a meaningful income-support programme to put purchasing power in the hands of battered households dealing with double-digit unemployment even without a national shutdown. Meanwhile, savers are being forced to accept deposit interest rates that are barely covering half of their inflation expectations.

Economists slash estimates

The extension of Covid-related curbs by many states into June and the greater spread of the pandemic into rural India have further dented the prospects of recovery, triggering a raft of reductions in growth estimates for FY22.

Most economists and experts now expect India’s gross domestic product (GDP) to grow in single digits against the 11-14% range forecast earlier. SBI Research said it expects a “disproportionately larger impact on the economy this time and given that rural is not as resilient as urban, the pickup in pent-up demand is unlikely to make a large difference in FY22 GDP estimates,” paring its forecast to 7.9% from 10.4% earlier.

Major states such as Maharashtra, Delhi, Haryana and UP have extended curbs with certain relaxations. Icra has revised its growth forecasts to 8-9.5% for the current fiscal. while Moody’s has cut it to 9.3% from 13.7%.

The reimposition of lockdown measures along with behavioural changes for fear of contagion are curbing economic activity and mobility, which will delay India’s economic recovery.Moody’s
While all other assumptions remained the same, CARE Ratings moderated its projected FY22 growth to 8.8-9% from 9.2% earlier on account of the higher base in FY21.

The sharp reduction in interest rates last year had provided support but that lever is no longer available, given worries over prices.

“We do not expect any further monetary policy easing by the RBI immediately due to inflationary concerns,” said Yes Bank, which lowered its FY22 growth estimate to 8.5% from 10.5% earlier.

Industry seeks support

“We feel that there is an urgent need for boosting demand through direct income support measures. Focus on urban poor, security cover for micro, small & medium enterprises (MSMEs) and other high contact-based services will be critical,” said Uday Shankar, president of the Federation of Indian Chambers of Commerce & Industry (Ficci).

Veteran banker and Kotak Mahindra Bank CEO, Uday Kotak had also “strongly” sought the government to consider another fiscal package to support the lower end of the society as well as small and medium businesses. The government could consider increasing the quantum of the credit guarantee scheme for providing collateral-free loans to small businesses from Rs 3 lakh crore to Rs 5 lakh crore, he had said.

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