India’s patchy economic recovery raises post-Covid hopes

The South Extension market in New Delhi is typically jammed at this time of year with shoppers splurging on gold jewellery and new clothes ahead of Diwali, the annual Hindu festival of lights. But with celebrations curbed by the coronavirus pandemic, many shops are deserted.

At the Ushnak Mal Madan Lall bridal shop, where glittering outfits range from $200 to $2,000, festival season sales are 30 per cent of normal levels. “International flights are cancelled, people are not coming from nearby cities — no one wants to take a risk,” said Ashok Tandon, the shop’s fifth-generation owner. “We’ve never seen anything like this.”

But at nearby Croma, a Tata-owned retailer selling electronics and home appliances, business is brisk. Suhel Khan, 18, bought a $550 laptop — his family’s first — on monthly instalments for his online college classes. “I always wanted to buy a laptop. Now it’s an absolute necessity,” he said.

The uneven footfall in South Extension reflects the Indian economy’s patchy recovery from the pandemic. The economy was already in the doldrums before a stringent nationwide lockdown pushed gross domestic product to contract almost 24 per cent year-on-year in the second quarter of 2020.

India also contracted significantly year-on-year in the third quarter, by as much as 9 percent according to one central bank forecast, which would would drop the country into a technical recession for the first time in its history.

But daily coronavirus infections have also fallen sharply from a mid-September peak of about 93,000 per day. Restrictions on businesses have been eased, an encouraging signs of economic life are emerging even as concerns persist about renewed outbreaks.

India is slowly reopening to business following a stringent spring lockdown © Anushree Fadnavis/Reuters

Consumers are slowly loosening their purse strings and resuming discretionary spending after months of household austerity. Rural households have been buoyed by New Delhi’s fiscal support measures, particularly additional funding for a jobs scheme, and a bountiful monsoon that boosted harvests.

This has given impetus to a surge in demand for some big-ticket items, including passenger vehicles, sales of which rose 14 per cent in October from the same month last year. Purchases of motorbikes and scooters, tractors and furniture and household items also increased.

“What you are seeing now is a process of normalisation,” said Aurodeep Nandi, India economist for Nomura, the Japanese bank. “We are making up for the lost ground of the lockdown, when everything came to a halt.”

However, executives and economists admit they are uncertain whether the nascent recovery will gain momentum or taper off after the festive season.

“The economy has been very variably impacted,” said Naushad Forbes, co-chairman of Forbes Marshall, an engineering company. “You have some sectors doing just fine, and some that are in very, very bad shape.”

“Post-Diwali, will we see a slowdown or will we see confidence continue to drive growth?” he added. “I think the answer, honestly, is that nobody knows.”

Manufacturing activity, which accounts for nearly 14 per cent of GDP, hit a 10-year high in October, according to the IHS Markit Purchasing Managers’ Index. Goods and services tax collection also rose to an eight-month high of about $14.4bn last month, up 10 per cent from October 2019.

But not all businesses are rebounding. Service industries, which account for nearly half of the country’s GDP, are languishing at a fraction of pre-Covid-19 levels.

About a third of India’s eateries have closed. “The next two years are going to be tough,” said Puneet Ahuja, who closed one of his three New Delhi sports restaurants during the lockdown.

India’s manufacturing sector hit a 10-year high on October, but the service industries are lagging behind © Dhiraj Singh/Bloomberg

Saurabh Mukherjea, founder of Marcellus Investment Managers, said the pandemic was changing consumer behaviour.

“Larger organised, better capitalised companies are gaining share at the expense of the small mom and pop operations,” Mr Mukherjea said, adding that ecommerce and big brands were being boosted over bricks-and-mortar retailers and independent businesses. “Those unable to evoke confidence in the post-Covid world that they are super hygienic are losing.”

Pawan Munjal, managing director of motorcycle maker Hero MotoCorp, one of the world’s largest manufacturers or two-wheelers, is optimistic. Hero sold a record of more than 800,000 units to dealers last month. Mr Munjal said “pent-up demand” — especially from first-time buyers — was driving robust sales, after a long pre-coronavirus slump in the vehicle industry.

“There is this whole shift from shared mobility to personal transport,” he said, though replacement demand is lagging. “Existing bike owners are not replacing bikes right now . . . Either they are using that cash elsewhere, or conserving cash.”

William Bissell, chairman of FabIndia, a chain of 300 stores selling apparel, furniture, home textiles and organic foods, said overall sales in the last two months were about 65 per cent of last year’s levels, led by homeware as house consumers focus on home improvement.

“We haven’t been able to keep up with furniture demand,” he said. “It’s the apparel that took the big hit. If you aren’t going to have a big wedding, there is no need to buy an outfit for everyone for 21 functions.”

How India’s economy fares in the coming months will depend to a large degree on whether it can avoid a resurgence of cases in cities. “It’s too early to say we’ve walked out of the woods,” said Mr Nandi. “Unless you get a grip on the health crisis, economic gains might be a tad ephemeral.”

Additional reporting by Jyotsna Singh

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