Festive Season: Challenges Galore
The festive season this year has a feel-good ring to it, at least on the face of it. A hundred crore-plus Indians have been vaccinated against the deadly corona virus, more and more citizens are getting inoculated each passing day, and very soon, the tragedy unleashed by Covid-19 will be behind us. This festive season (Oct-Dec) has also raised hopes for business revival, especially with the country emerging from the pandemic and economic activities picking up.
After all, most states have significantly eased restrictions on manufacturing and production activities especially after July, and this has indeed brought in some measure of relief. However, when looked at through the prism of job-loss figures, rising inflation and sluggish demand, the feel-good gives way to concern.
This festive season, several sectors expect a renewed growth on the back of enhanced consumer interest. According to NASSCOM, despite Covid-19 challenges/ disruptions, India’s e-commerce market, which is growing at more than 5 per cent every year, is expected to generate sales of $57 billion (around Rs 4.25 lakh crore) in 2021. Earlier in October, leading e-commerce players like Flipkart, Amazon India and others clocked a whopping $4.6 billion (nearly Rs 32,000 crore) in revenues within the first few days of the annual festive sale. Of course, these were largely driven by sale of mobile handsets and connected gadgets, an industry report pointed out.
In terms of GMV (gross merchandise value), the e-grocery market in India is also seeing a major uptick, perhaps a direct result of pandemic-induced lockdowns that had forced regular shoppers to shop online. From a GMV of $1.9 billion in 2019, the e-grocery market is expected to virtually double to nearly $4 billion at the end of 2021. While the substantial growth of ecommerce has been a head turner all through the pandemic months, some crucial sectors are desperately looking for a complete turnaround.
Keeping Fingers Crossed
Take, for example, the automotive sector. It is one of the significant contributors to the gross domestic product (GDP) of the country. This manufacturing-led sector, among the leading employment generators in the country, has been in a slowdown even before the pandemic. However, now it is facing a major crisis due to a variety of reasons. While the sector has continued to battle low demand, and rising cost of fuel as well as automotive products, its latest bugbear is an acute shortage of key electronic components that is threatening to be more than a bump in the road. And to top it all, the decline in car sales is unrelenting.
In September, the automakers saw a 37 per cent drop in car sales. In number terms, all carmakers together sold only 1.85 lakh units compared to 2.9 lakh units sold in the same period last year. Month on month there was a 28.5 per cent drop in sales compared to 2.59 lakh units sold in August 2021. And, a shortage of semiconductors (key element in electronics) is forcing major carmakers to cut production.
The entire auto industry supply chain has been affected by the semiconductor shortage, not just within the country but outside too. There have been drastic cuts in the supply of vehicles to the car dealers, say all leading carmakers. “We have had almost a 50 per cent cut in production in September and another 40 per cent is expected in October,” says Shashank Srivastava, Senior Executive Director (Marketing & Sales), Maruti Suzuki India.
While the demand parameters look positive in terms of enquiries and bookings, the supply side shortfall has resulted in a build-up of waiting periods for the customers. “This has and will affect the retails negatively,” says Maruti’s Srivastava. This is a bad news for the automotive sector that traditionally sees over a third of its yearly sales during the festive months.
The housing sector is another one that is looking forward to some magic sales numbers thanks to the festive season ahead. Unlike poor car sales, the housing sector, in fact, saw a rather robust September quarter in which around 52,000-55,000 residential units were sold thanks to low home loan interest rates, and increased consumer spends from those who could afford. Till end-December, the housing sector hopes to better the sales figure of the previous quarter. Anuj Puri, Chairman, ANAROCK Group, a leading realty consultancy is quite confident about the festive period boom. “If our current predictions hold true, the ongoing festive quarter will see at least 35-40 per cent yearly rise in overall housing sales across the top seven cities when compared to the same period last year.”
In the last three months of 2020, the top seven cities saw a total housing sale of 50,900 units. So expectations will be met if the three-month festive period manages to generate total sales of around 70,000 units or an average monthly sales of more than 23,000 units. What may dampen this is the rising input cost. Steel and cement, the two key construction components are witnessing almost a weekly price escalation.
Stock markets have bucked all the trends and keep breaking records. For the first time, the Sensex crossed the 50,000 mark in January this year only to better itself by going beyond the 60,000 mark nine months later on September 24. Over the next 20 days, it crossed 61,000. As a result of this significant rally, 2021 will also be known for record number of Initial Public Offers (IPOs). So far, a record number of IPOs in the last 10 months have managed to generate in excess of Rs 75,000 crore – this is equal to the aggregate IPO collection over the past three years, if not more.
Will this continue? Rakesh Bhandari, Director, Nirmal Bang Securities, says, “Yes, for sure, thanks to greater participation of retail investors, and millennials. And this is happening because of a variety of reasons including better education, increased knowledge of markets, better awareness, and availability of tech-backed apps that make investing easier. Retail participation has increased over the years owing to several factors. Millennials now understand the equity markets because of education, increased awareness.”
The next three months are expected to witness a range-bound market movement unless something major breaks out, experts predict.
Economic Challenges?
Some key economic challenges may play spoilsport in the coming months. Fuel prices for one have been on a sustained upward trajectory and now threatening to become even costlier due to the global politics surrounding the oil economics. At home, petrol prices have been above Rs 100 per litre for a while now having crossed the Rs 100-a-litre mark across Jammu and Kashmir, parts of Punjab, Haryana, Delhi, Rajasthan, Madhya Pradesh, Maharashtra, Andhra Pradesh, Telangana, Karnataka, Odisha, Tamil Nadu, Ladakh, and some cities of Bihar among other states. The Brent crude futures are trading upwards of $83 per barrel. Any upward movement may spoil the festive celebrations for sure. Cooking gas prices are also inching towards Rs 1,000 per cylinder (14.2 kg cylinder) and already upsetting the household budget.
Statistically, food inflation may be on a decline, yet the prices of everyday products are higher than before. Prices of onion and tomatoes continue to go north with every passing week. Even the central bank has taken a note of food inflation in its recent meeting. The Monetary Policy Committee of the Reserve Bank of India (RBI) expects inflation to start increasing from the December quarter onwards. In its October 08 forecast, the committee projected inflation to be 5.1 per cent for the July-August-September quarter. It is even higher at 5.8 per cent for the January-February-March quarter of the current financial year (FY2021-2022). For the current quarter, the projections show a decline (4.3 per cent revised from 5.3 per cent earlier), which experts are attributing to a low-base effect (reference to same period, last year).
Edible oil prices continue to be high due to high prices of palm oil (key constituent of processed edible oils). India imports around 60 per cent of its edible oil requirement, hence the concern over its adverse impact of food inflation.
Coal shortages threaten to adversely impact the power output which in turn will directly impact the factories and businesses, one of the biggest consumers of electricity.
Collection Economics
Against this worrying backdrop and despite some grim projections, businesses are upbeat about the festive season sale. And why not? The net direct tax collection numbers are heartening, say the government supporters. And they have the data to show. Between April 1, 2021 and September 22, 2021 the central government’s net direct tax collection zoomed to Rs 5.70 lakh crore. This figure was 74.4 per cent higher compared to Rs 3.27 lakh crore collected in the same period last fiscal. As per the data shared by the Central Board of Direct Taxes, the gross direct tax collection (as on September 22, 2021) stood at over Rs 6.45 lakh crore (47 per cent growth) compared to Rs 4.39 lakh crore mopped up in the same period last year. It is 16.75 per cent more than the comparable period in 2019-20 financial year (pre-Covid) when it was Rs 5.53 lakh crore.
Not to forget, the Goods and Services Tax (GST) collection have also been consistently above Rs 1 lakh crore in recent months (at least in the past three-months for sure). The GST collections in September stood at a five-month high of Rs 1.17 lakh crore, 23 per cent higher than the collections in same period last year. Another reason for any cheer is a five per cent increase in the average monthly gross GST numbers. Against an average of Rs 1.10 lakh crore for the April-May-June quarter, the average was Rs 1.15 lakh crore for the July-August-September quarter.
“This clearly indicates that the economy is recovering at a fast pace. Coupled with economic growth, anti-evasion activities, especially action against fake billers have also been contributing to the enhanced GST collections,” said the finance ministry in an official statement. Are happy days coming again? Only time will tell.
