COVID’s second coming is grim news for the retail sector. Partial lockdowns, sharply truncated business hours and the harsh nature of the illness have combined to cut down consumption. Airlines too stare at dark clouds and can only hope for some GST reforms to ease their pain.
The second wave of COVID-19 has ravaged both urban and rural India, pushing the country into an unprecedented health crisis. Nearly 30 states have announced lockdown like restrictions till the end of this month and some have even extended the deadline till mid-June to contain the spread of the virus. This has resulted in unemployment spiralling to 14.7 percent in the week ending May 23 and urban unemployment rising to 17.4 percent, according to the Centre For Monitoring Indian Economy (CMIE).
An uncertain job scenario, coupled with out-of-pocket spending on health has forced consumers to turn to precautionary savings. This has disrupted the consumption cycle, hurting retail sales.
According to a survey by the Retail Association of India (RAI), retailers across the country saw a 49 percent de-growth in sales in April compared to last year, and retailers across the western states saw the highest de-growth of 72 percent in April versus last year.
Retailers say they are feeling the heat more this time around as last year’s lockdown had seen a disruption in supply but a significant boost in demand since consumers resorted to panic buying. Then there was also pent-up demand after the lockdown was lifted. The situation is just the opposite in the current lockdown where consumers are buying only what they need. The restriction of not allowing shops to entertain customers after 11 am is also seen as a major demand dampener.
"We are asking the state governments to extend the number of business hours because if you keep lesser number of hours for shopping, it is only increasing crowding. Some categories which were doing well even last year, things like electronics, sports goods, etc have also seen a dip this time," says Kumar Rajagopalan of RAI.
The RAI survey highlighted that sales of non-essential items saw a steep de-growth in April, especially in the sports goods category with a contraction of 66 percent, followed by footwear, beauty-wellness-personal care, jewellery, consumer durables and electronics as well as clothing.
"This time the overall impact on the mood of the people is much more severe, a lot of us also have been personally affected in some way or the other. From the consumption point of view, I would certainly expect a slower recovery compared to last time. Our readiness to step out after the lockdown is lifted is going to be much lower than when the lockdown was lifted in 2020," said C.K. Venkataraman, MD, Titan, one of India's leading jewellery makers.
Retailers also complained about the distinction between essential and non-essential items. Arvind Mediratta, MD & CEO of METRO Cash & Carry India, questioned why these rules are only applicable to brick and mortar stores, while e-commerce companies are allowed to sell both categories.
"This time the impact is lot more severe than what we saw last year. In fact, May is turning out to be the worst possible month is terms of business since the pandemic started. Small businesses have been decimated, small mom and pop shops that sell non-essential products are virtually reporting zero sales,” said Arvind Mediratta.
But retail is not the only sector to feel the heat of COVID’s second coming, as the aviation sector too stares at a huge financial crisis, given the drop in traffic due to travel restrictions. According to aviation consultancy firm CAPA, airlines will need over $5 billion to survive the COVID impact. In its annual India Aviation Outlook, CAPA said India's airlines are unlikely to return to profitability even in financial year 2023. It also said the government urgently needs to address key fiscal measures for the aviation sector, including bringing air turbine fuel (ATF) under the ambit of GST, reducing excise on ATF and reducing IGST on aviation spares.
"The aviation industry is really at a point of no return. This is back to back twin blows, unprecedented blows, and I don't think we have fully recognised the extent of this crisis and its long-term consequences," said Kapil Kaul, CEO, Indian sub-continent, CAPA.
As every sector hopes that restrictions will soon be eased and business will return to normal, governments are unlikely to reopen economic activity unless the daily case rate drops and vaccination picks up as expected.