top of page

As second Covid wave wanes, Indian industry quickly returning to normal

The prognosis that the economic impact of the second wave of Covid-19 would be less severe on the Indian economy than the first could be coming true.

“The resurgence of Covid-19 has dented but not debilitated economic activity in the first half of Q1: 2021-22. Although extremely tentative at this stage, the central tendency of available diagnosis is that the loss of momentum is not as severe as at this time a year ago,” the Reserve Bank of India (RBI) had said in its State of the Economy report released last month.

The series of localised lockdowns implemented by some states, the increasing acceptance of work-from-home by both employers and employees, the rising popularity of online delivery, e-commerce and digital payments and more Covid-appropriate behaviour by a larger section of the population were offered as reasons for this.

The rising number of vaccinations and Prime Minister Narendra Modi’s announcement of universal free vaccines for the country’s entire adult population is providing tailwinds to the rising confidence of both industry and consumers.

Top line growth noticed in the corporate sector

“The impact of the second wave on the real economy seems to be limited so far in comparison with the first wave,” the RBI said. “Meanwhile, corporate performance is undergoing a silent transformation as if it is positioning itself for a turn in the business cycle. The initial set of earnings results declared by 288 Indian listed companies (constituting around 51 per cent of the market capitalisation of all listed non-financial companies) for Q4:2020-21 marks a distinct shift from the previous quarters, with top-line growth gaining prominence in a broad-based manner,” the report added.

Migrant workers are returning to their jobs

This uptrend is being reflected in production figures in important sectors such as automobiles, electronics and smartphones, consumer durables and appliances and a host of others. An important factor behind this is the return of migrant workers from their home districts as local level lockdowns are gradually eased and lifted.

Credit: ANI

With pent-up demand providing these sectors with much needed consumption buoyancy, the easy availability of labour is enabling them to ramp up output quickly.

Automobile sector doubles output in June

Over the last two weeks, India’s automobile industry, which accounts for 40 per cent of the country’s manufacturing GDP, has scaled up production from 30-40 per cent of installed capacity to 60-80 per cent now.

A report in The Economic Times said Maruti Suzuki, Hyundai Motor Company and Tata Motors, the top three Indian automakers, are likely to roll out as many as 200,000 cars this month. This will be about 80-90 per cent of their peak output.

Other sectors are also showing a similar uptrend in output

This story is repeating itself in other sectors such as electronics and smartphones as well. Industry sources said this sector is likely to ramp up production from 20-30 per cent of capacity now to 50-60 per cent of capacity in the next week or two.

The fact that many of these companies are assisting their workers with vaccinations is increasing their confidence and leading to more workers returning to their jobs.

Logistics, local lockdowns preventing full normalcy

These companies are still, however, facing significant challenges in returning to their pre-Covid levels of activity. They are facing headwinds in the form of supply chain disruptions as local lockdowns are delaying the supply of key inputs. Then, sending finished goods to their designated selling points is also facing similar restrictions.

But most industries are confident that if the situation continues to improve at the same rate as it has since the beginning of this month, they can quickly scale up production once the lockdowns across various states are lifted.

With the launch of the free vaccination programme announced by Modi expected to roll out from next week, they expect this return to near normalcy to happen sooner rather than later.

This expectation is echoed by global agencies as well. Fitch, one of Big Three global rating agencies, has said the economic impact of the second wave of Covid-19 will not be as severe as the first despite the damaging optics of higher caseloads and fatalities.

“We expect the shock to economic activity from the latest wave of the pandemic in India to be less severe than in 2020, even though caseloads and fatalities are much higher. The authorities are implementing lockdowns more narrowly, and companies and individuals have adjusted behaviour in ways that cushion the effects,” it said in a recent research note.


Credit: India Global Business | 16.06.2021

1 view0 comments


bottom of page