Economy: Outlook for major sectors amid Covid-led dispruptions

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Most economic slowdowns are marked by a dip in demand in different sectors. The second surge of the pandemic has only reinforced that experience that is recording a dip in demand in some key sectors even as the decline is spreading to almost all sectors of the economy except a few areas like healthcare and consumables such as oxygen.

The growth of demand in the different sectors is critically dependent on the removal of restrictions, which, in turn, depends on how quickly the vaccination programme can be rolled out and whether the apprehension of a third wave materialises or not.

Fuel consumption

Most notably, consumption of petro fuel, that is directly linked to mobility in the economy of human beings and goods, has gone down in April compared to March. According to statistics of the Petroleum Planning and Analysis cell of the ministry of petroleum, the consumption of petrol fell by 13% in April compared to March and that of diesel by 7.54% in the same time period.

It is obvious that if the full and partial lockdowns continue in different states, the consumption of fuel might fall further or settle at a low level.

Cement, steel

Like petro-products, the demand for cement and steel also fell in April with lockdowns hitting the real estate and construction sector. Steel might also feel some supply-side constraints since several steel plants are diverting the oxygen they need for use in hospitals.

If the shortfall in oxygen supply persists, production in steel plants will continue to suffer and a lack of demand will add to the dampening effect.

Real estate

This is a labour-intensive sector and lockdowns affect the construction activity shackling supply side activities just as lockdowns trigger a deceleration/dip in demand. The real estate sector was buoyant about returning to the growth path as new launched were expected early in this financial year to coincide with the projected revival of the economy, but the second phase of restrictions have affected the recovery.

While on the one side there was encouragements like the slashing of stamp duty on registration by the Maharashtra government, on the other interest rates on home loans were reduced to boost demand. Real estate player noticed that consumers were looking for dwelling units with 3-4 BHK to accommodate for work from home requirements.

But revival of the sector will critically depend on when the lockdowns are lifted, which, in turn, will depend on the flattening of the infection curve.

Agriculture

In FY21, agriculture was perhaps the only sector of the economy that recorded positive growths in all the three quarters for which figures are so far available. It is estimated to have grown by more than 3% throughout the period last year. In fact, had it not been this sector, the overall contraction figures of the economy would have deepened further.

While there is no report on overall agriculture suffering to a noticeable extent due to the second run of the infection, there is a sharp difference from the first surge – the infections are spreading to the countryside. Last year, the infection was largely confined to the urban settlements.

If infection spreads to the rural areas of the major states such as Uttar Pradesh, Bihar, Chhattisgarh, Odisha, Bengal, Madhya Pradesh, and Punjab-Haryana, agriculture might suffer this year.

One silver lining is that the meteorological department has predicted a normal monsoon, on which Indian agriculture still depends a lot.

FMCG

This is a segment that is directly dependent on the amount of disposable income in the hands of the common man. With slowdown in many sectors, loss of jobs wages slashed and many migrant workers returning to their homes, the consumption of these products will continue to decline for the foreseeable future. Demand can rise only with infections going to down markedly, lockdowns being lifted and resumption of economic activity that will put some money back in the hands of the common man.

FMCG item producers will now look forward to a good monsoon for the farm sector to generate some demand.

Hotels, restaurants

The entertainment and hospitality sector is one of the few that recorded negative growth in all the first three quarters of FY21 for which figures have been announced so far. Though the overall economy posted a nominal growth of 0.4% in the October-December quarter, the hospitality sector could not overcome the decline.

With hotels, restaurants, pubs, bars, cafes, discs, movie theatres and similar gatherings closed in almost all states, this sector might be in for a long hibernation. This sector is as much dependent on mobility as on the amount of disposable income that an average family has at hand.

Auto sector, airlines

Like the hospitality sector, these sectors are critically dependent on mobility. While in FY21, some companies sold vehicles, thanks to the realisation that the infection needs isolation, the second surge of the infection has got many potential consumers a bit uncertain of the future and they are thinking twice on committing a lump sum quickly.

The new fiscal year opened with a decline in sales compared to that in the last month of FY21. Unless the lockdowns are relaxed with resumption of mobility, the sales figures won’t revive quickly.

For the Civil Aviation sector, sales nosedived 29% in April compared to March, rating agency ICRA mentioned in a report. The future and growth possibilities of this industry, too, is dependent on the relaxations of restrictions in travel by the government.

Phones, computers

While sales of laptop and desktop computers are likely to remain steady due to the continuing need for online classes for students and work from home requirements of adults, the sales of smartphones, a large part of which is dependent on disposable income and a confidence about the future, might take a hit.

If lockdowns are lifted and the health of the overall economy improves, the sales of smartphones might pick up later in the year.