Mumbai: Some of India’s top business chiefs exuded confidence about the strength of the ongoing demand recovery in key sectors and added that the worst is over for the beleaguered economy. Green shoots are visible in macro-economic numbers and high frequency indicators. Rural growth is not only outpacing urban growth but is also leading the recovery, they said.
“The more I converse with CEOs of various organisations, the more I get convinced that there is an improvement in the macro-economic situation, especially over the last month or so,” Axis Bank MD Amitabh Chaudhry told ET. “Despite the festive season ahead, I foresee an ‘L’ shaped recovery wherein the pickup would be slow and gradual but definite.”
State Bank of India chairman Rajnish Kumar said the festive season could bring in strong loan growth. “The economy seems to be improving. Leading indicators from corporates, the RBI and the government seem to be pointing to that and as more data comes in the picture will become clearer,” said Kumar. “August 2020 has been better than August 2019 for quite a few segments like deposits where I think there could be pent-up demand.”
AgenciesGrowth in Rural Economy
“We are also seeing healthy traction for housing loans, and segments like agriculture and personal loans are doing much better than in June,” Kumar said.
India’s GDP plunged by a record 23.9% in the first quarter ended June, posting its worst performance since quarterly reporting of data began in 1996. Industrial production and core sector data for the first four months of the financial year were equally bad with some economists pencilling in a 10% plus fall in GDP for the full year.
The picture has become slightly better since then with the automotive sector posting its first year-on-year sales growth in six quarters in August. The pace of decline in industrial production has slowed and the pick-up in rural India has become more pronounced.
“We see a revival in demand in select pockets over the past two months,” said Pawan Munjal, chairman of Hero MotoCorp, the country’s largest two-wheeler maker. “Sales have picked up in rural and semi-urban markets owing to growth in the rural economy and the stimulus provided by government schemes. We are now faced with the fortunate situation of having more demand than supply – and we are working closely and collaborating with our supply chain partners.” Hero posted a 16.9% increase in domestic two-wheeler sales in September this year, the highest in a single month in 2020.
Southern rival TVS Motor, too, posted decent bike sales in September over the year-ago period while carmaker Maruti Suzuki’s sales rose 33%. “We are definitely seeing green shoots across all consumer products from FMCG to automobiles,” said Venu Srinivasan, chairman, TVS Motor Company. “Rural is of course helping. But urban decline is much less than expected and exports are doing well,” “We still will be down by 15 to 20% for the year as a whole. Government fiscal and monetary policies seem to have helped to ameliorate the economic pain.”
Paint maker Kansai Nerolac reported on Monday that sales have normalised and that its plants are running at pre-Covid levels.
A report by brokerage Motilal Oswal on Monday suggested that India’s economic activity contracted only 3% in August 2020, after a complete washout in April -June period when GDP contracted nearly 24%. Farm activities continued to show robust growth implying that non-farm GVA shrank 3.9% in August.
Global brokerage house Nomura’s India Business Resumption Index, which tracks the normalisation in business activity, rose to 82.1 for the week ended October 4 from 81.6 in the previous week.
“Growth is picking up, rural growth this year will surpass urban growth,” says Adi Godrej, chairman of Godrej Group.
Tata Steel CEO TV Narendran said the worst is over and that the market recovery in September has been better than August. “We are seeing a revival in demand in Q2 led by good monsoons and positive activity in the rural economy. Our production is running at 100% capacity and we are now less dependent on exports than we were in the first quarter.” he said.
FICCI president Sangita Reddy, however, sounded a word of caution. “Although the Q2 GDP numbers are likely to see some improvement, it is expected to remain in the contraction zone,” she said. “The key concern at present is weak demand and the same has been highlighted in our ground level surveys.”
A top corporate CEO, who didn’t wish to be named, said more handholding is needed on the part of the government. But Axis Bank’s Chaudhry said corporate India should pick the mantle for economic recovery instead of waiting for a stimulus from the government.
“I strongly believe that the RBI and the government have done quite a lot and have been dynamic and flexible, providing the much needed stability in the system,” he said. “Now, we should stop waiting for stimulus packages and take the onus of doing whatever is possible in our capacity to get the economy and a sustained upbeat sentiment, back on track.”