The Confederation of Indian Industry (CII) released its report on the expected state of the Indian economy last week. The report highlights important information for the second half of FY 21. Steady recovery of the economy is expected with the lifting of lockdowns across states. COVID-19 has caused major disruption to the Indian economy with the GDP declining by 23.9% in Q1 (Apr-Jun). However, the CII’s news comes as a relief, forecasting growth in the rest of the fiscal year.
Here’s what I am covering today:
- Determining factors for economic recovery
- Why is the CII outlook on the Indian economy important?
- Indian economy: Area-wise growth predictions
- Which sectors are improving the fastest?
- Where does the Indian economy stand right now?
- Wrap Up
Determining factors for economic recovery
COVID-19 has turned global economies upside down. Each day, experts are trying to understand what determinants can lead to a steady economic growth. Several factors are considered when it comes to economic recovery during VUCA situations. These include:
- The duration of the uncertain event
- Its consequent effect on employment and household incomes
- The extent of government-provided fiscal stimulus, to name a few.
However, the CII outlines 3 other factors as well:
1. Reopening of the economy
It is imperative that the consistent reopening of businesses across states and cities is continued. It has been observed that even a gradual reopening leads to a spark in industrial growth. Moreover, it is necessary for the government to allow a complete economic opening up. The rise in demand will push forward capacity utilization.
2. Increase in Demand
A boost in the economy will most likely occur as a result of an increase in demand and purchasing power. Steps must be implemented to get consumers to spend more. The pandemic has led consumers to make rational decisions when it comes to spending their money. This is due to the growing unemployment rates and the fear of losing jobs. Leaders are hopeful that the upcoming festive season will lead to a rise in demand.
3. Focus on Livelihoods
A growing concern in the revival of the economy is the need to focus on livelihoods along with human lives. Central and state governments must prevent sudden and abrupt lockdowns across states and districts. These restrictions do little to save lives and further disrupt economic activities.
Why is the CII outlook on the Indian economy important?
The Confederation of Indian Industry works towards creating growth and development for Indian industries. It is the most important organization that partners with government and society to create sustainable industry environments. The National Council is considered the apex board of the CII. In the latest virtual CII National Council Meeting, 115 CEOs gathered to discuss the impacted economy. These CEOs were from top Indian companies across various sectors such as:
- Metals and Mining
The overall sentiment of the CEOs wrt the 2020 FY growth was positive. Additionally, most leaders expect a moderate rise in business results. The body also included representation of small and medium-sized businesses (SMBs) along with top Indian startups.
The members predicted the growth in several sectors, with most agreeing that the worst was over. While the capacity utilization is well below comparative figures of 2019-20, the majority of the CEOs have shown confidence. This is because of the nationwide resumption of economic activities. The government reforms and RBI revivals have also added to the rising faith in economic expansion. So if you are hoping to return to work, you may refer to this FICCI checklist for office reopening.
Indian economy: Area-wise growth predictions
All is not lost, yet. That’s the summation of the poll results of the predictions made by the 115 CEOs. The predictions were made on 3 major areas, consumer demand, exports, and revenue growth.
- For consumer demand, 32% of the CEOs are hopeful for better prospects. 27% of them expect no change as compared to the second half of FY 2019.
- On exports, a good 40% expect positive growth while 24% expect no change compared to the same time last year.
- With respect to revenue growth, about 31% of the CEOs have a positive outlook for FY 21.
Which Indian economy sectors are improving the fastest?
This is probably the question every Indian citizen wants to know the answer to. It is safe to say that a lot of sectors are recovering well and are likely to grow further in the 2nd half of 2020. Let’s break it down.
The agriculture sector has shown considerable positive growth during COVID-19. This is evident with the news of the first advance estimates of the Kharif crop ascending 144.5 million tonnes.
This sector has been showing consistent monthly improvements. The demand for FMCG goods is estimated to reach pre-COVID levels in semi-urban areas and towns. Even in cities with a high number of COVID-19 cases such as Mumbai, Pune, and Chennai, the FMCG sector is picking pace.
Consumer demand has seen a rise with double digits growth in August. This sector is expected to grow by 20% by Q3, a prediction supported by 32% of the CII-CEO members. In particular, kitchen appliances ( washing machines, refrigerators), TVs, and lighting are performing well.
A concern shared by the CII report is that further restrictions on the movement of goods and services may result in supply chain constraints. In addition, this may create challenges, thus hampering consumer demand.
Paper and Packaging
This is a very important sector as it reflects the aggregate demand in the economy. Growth levels in this sector are approximately 90% back to pre-COVID levels which is good news. Even though retail footfall has been low due to the lockdowns, the ticket size of purchases has grown with the unlocking.
This sector is another significant one as it is a major GDP contributor. The automotive industry has also been witnessing increasing demand. Four Wheelers have seen a 15% growth in the month of August while Two and Three Wheelers are also doing comparatively well. The sales of tractors have been termed ‘extremely good’ by the CII. Furthermore, it has made up for insufficient sales in April and May.
Where does the Indian economy stand right now?
As the country continues its unlock phases to completely normalize activity, the economy will grow steadily. The 5.3% expansion rate of outbound shipments holding merchandise exports in September (as per provisional official trade data) supports this. Additionally, new vehicle registrations are seeing continual increases on a year-on-year basis.
The weekly Centre for Monitoring Economy (CMIE) unemployment rate has kept declining as well. Moreover, the unemployment rate is now below the pre-COVID levels which is a promising indicator for what’s coming.
We’ve done a deep-dive into what the second half of this year will bring to the Indian economy.
We analyzed the factors that will be responsible for the steady growth of the economy. Therefore, it is evident that reopening the economy and increasing consumer demand is crucial to achieving growth across sectors.
The predictions made by the CEOs at the CII National Council Meeting also shed light on the growth of three important areas. It remains to be seen whether these predictions hold true in the coming months.
With the sector-wise analysis, we also saw the 5 most improving industries. There is definitely some good news there with agriculture, consumer durables, and automotive, showing substantial growth percentages.
September proved to be a turning point for exports, vehicle purchases, and unemployment rates. Let us hope that this trend continues and spread to all Indian industries to retain a strong economy. Click here for the original article.