Year 2020 shall remain etched in the memory of mankind for ages to come. The worldwide spread of Covid virus pushed the world into a complete lockdown mode. As a result the world economy tanked including India’s which saw its GDP sinking to -23.7 percent, as economic activity came to a complete halt.
It is said that every crisis brings with it seeds of opportunity. The economic crisis and the new wave of unemployment led the Govt. of India to embark on the new phase of Economic reforms including fresh stimulus packages like reducing interest rates to 15 yr lows, tax cuts, paving way for SMEs and large corporates to avail loans at a cheaper and faster pace. The GoI revamped and relaunched Make in India initiative with Atma Nirbhar Bharat project which envisaged making India a manufacturing hub. Providing Production linked incentives to new industrial clusters like Auto, Chemicals, Electronics, and Pharmaceuticals among others, the Govt. has clearly shown its intent to back the industrial growth. Import restriction on many items helped industries like Chemicals and Pharma to gain rapid market share.
BUDGET’21 too envisaged greater focus on infrastructure development like Roads, Railways, Airports and Seaports. It also facilitates the formation of bad backs which will help back clean up their books by transferring their NPAs to such entities.
All these measures have started yielding some results on the ground and at the same time, sentiments too have improved vastly. From a negative 23.7 percent, the GDP bounced back to 0.4 percent in Q3FY21. During Q2 and Q3, the industrial activity has picked up again. Most factories are almost running at full capacity. Autos, Electronics, FMCG, white goods and many consumer discretionary items have seen a good uptick in demand. And all this while, Farming activity was at its peak, having posted best returns in decades.
After a lull over the last few years, many large corporations are declaring new capex plans which are significant and hint at sustained demand surge over the next few years as well.
With inflationary pressure well under control, the interest rates are expected to remain low for years to come. With the government now focused on the growth of the economy following a deep slumped past 3 years, it is all likely that the GDP shall witness a strong recovery over the next few quarters.
However, Hospitality, tours and travel and Education are few large sectors that still await full opening up. As the vaccination process is much slower and shall take a lot of time to vaccinate the whole of India, it is highly likely that these sectors shall not witness fully opening up very soon. Longer the time to vaccinate the whole nation, the longer the suffering that these sectors may witness. We are already seeing big changes in the way the world has started doing business and as long as the Covid scare stays, some drastic
changes shall evolve here too.
Certain states have witnessed the second wave of Covid spread which the authorities need to curb by hastening the vaccination process.
The other worry is the rise in prices of Base metals and Crude oil. The high prices of raw materials have the potential to derail the tight inflationary controls that the Govt. has managed so far. A big spike in inflation can force the RBI to push for some rate hikes which would be a scary thought. Already the recent spike in bond yields have caused some ripples in the market with Sensex and Nifty witnessing sharp losses in recent weeks.
Hopefully, these worries are still manageable as the companies have been able to pass on the price rise to the consumers.
While the risk shall always persist, the recent steps taken by the Govt., and RBI to bolster the economy are going to sustain the growth over the long term. Many global financial institutions have projected over 11- 12 percent GDP growth in FY 21-22 and if the timeline of new projects is adhered to then a strong rebound is the more likely outcome.
The author, Nirav vakhariya, is Head Research at Share India. The views expressed are personal
