Growth looks sunny despite the high cost of Covid-2

Story by  ATV | Posted by  Aasha Khosa • 2 Years ago
A corona center in Delhi
A corona center in Delhi

 

 Sushma Ramachandran

The decision of the country’s largest two-wheeler manufacturer, Hero Motocorp to close down for four days in a staggered fashion indicates the impact of the second Covid wave on the economy.  It has manufacturing facilities in Haryana, Uttarakhand, Andhra Pradesh, Gujarat and Rajasthan and has evidently been affected by movement curbs imposed in several of these states. With this temporary halt in production, two-wheeler sales that had already been rising slower than others in the auto segment are bound to get further disrupted. 

In this backdrop, it is evident the country will have to be prepared for the second wave to take a greater economic toll than had been envisaged earlier. The soaring numbers of infections in major industrial and commercial centres of the country indicate that the situation will not get back to normal for at least another two months. In other words, the wave may subside by June, marking the end of the first quarter of 2021-22. Some amount of normalcy should thus be restored by July. But this means that the benefits of the economic recovery seen from December 2020 onwards would have been lost to some extent. 

The scenario is grim right now with Covid infections continue to rise rapidly in many parts of the country being led by Maharashtra, Uttar Pradesh, Karnataka, Chhattisgarh, Kerala and Delhi. While it would be premature to estimate when it will subside, some epidemiologists are reported to have estimated that the peak will be reached in Maharashtra in early May, with other states following much later.

The net result is going to be that some industries that rebounded quickly from the trough of 2020 are going to face setbacks yet again. The auto sector, for instance, recovered rapidly from December and demand picked up in the last quarter of 2020-21. Similarly, consumer goods saw a boom in sales over the same period as pent up demand led to production rising quickly to pre-pandemic levels in the January to March period. 

The bigger issues are in the areas of aviation, tourism, real estate, hospitality and small services including gyms and salons. As far as aviation is concerned,  passenger capacities had risen sharply by January as the first Covid wave was tapering downwards, travel had then become a priority for those who had been home-bound for many months. 

The situation has again reversed as capacity utilization has once again dropped sharply. Tourism and the hotel industry are facing a disruption just as the situation had begun to improve in the last two months. Restaurants too are again in a crisis. Real estate similarly had been limping back to normalcy but construction activities are facing disruption in some areas.

What is worrying is the fact that these sectors employ millions of contract workers who had just been getting back to normal wages after last years pandemic. Migrant workers flocked to bus terminals and railway stations immediately after the announcement of a one-week long curfew in Delhi, fearing that it could become an extended lockdown and affect their livelihoods yet again. 

The impact of the second wave on jobs has apparently begun since early April, according to the latest data compiled by the Centre for Monitoring the Indian Economy (CMIE).  It found the unemployment rate in urban areas had risen from 7.2 per cent on April 4 to 10.7 per cent for the week ending April 18.  In contrast, the overall unemployment rate was marginally down to 8.4 per cent on April 18, as compared to 8.58 per cent for the previous week. Similarly, rural unemployment fell from 8.58 per cent on April 4 to 7.31 per cent on April 18. In other words, job losses are now growing in urban areas rather than rural areas, probably owing to the movement restrictions imposed in many cities currently.

The question remains, what is the outlook for the rest of the year, given the fact that the second wave shows no sign of abating immediately. One can take heart to the fact that the economy revived rather quickly from the prolonged collapse of last year. In fact, the rebound amazed most economic pundits who had been anticipating a much slower pace of a revival. It can thus be predicated that a similar scenario is likely to emerge after the peak of the Covid infections is reached in major industrial and commercial hubs of the country.

One of the positive indicators already seen is that the initial rush of migrant workers from Delhi abated as soon as the state government announced financial compensation to some categories of workers immediately. In other words, it is possible for states to retain their workforces despite the curfews if adequate support is provided to workers at the right time.

The second positive is that there are certain industries that have been able to survive and thrive despite the pandemic. These are largely in the digital economy, as information technology and telecom companies have not only maintained their profitability but seen soaring profits. Many, like TCS, have adopted work from home as a long term strategy and have thus avoided any disruption to operations even during the second wave of infections. Apart from this, the pharmaceutical and medical equipment sector has been sustaining operations to meet the urgent demand for health-related products.

 There has also been some amount of diversification such as the focus on the production of PPE kits and ventilators. But here the increased capacities are reported to have been under-utilised sharply after the first wave subsided, leading to closures. 

And probably the most important advantage for ensuring a quicker economic recovery is the fact that the various movement curbs have not resulted in complete lockdowns all over the country. These are confined to localized areas. This ensures that the movement of goods and people is not completely curtailed and makes it easier for industries to continue operations in many areas. So while a major two-wheeler company has shut down operations temporarily, it is equally possible that it may be able to get back to full production levels sooner rather than later.

The good news is that reports are coming in of Covid cases plateauing in Mumbai. This is significant as it is the country’s financial capital and a major industrial centre. It raises hopes that despite the first quarter of the current fiscal likely to show depressed growth, the economy may be able to get back to better days after another two months. With rating agencies still predicting double-digit growth for India in the current fiscal, it seems likely that prospects will be sunnier in the rest of the year.