Amid COVID-19 economic recovery, small businesses & farmers foster demand

AdvertisementGovernment data made public on Friday reflected the contraction of the economy by 7.5% in the July-September quarter, performing better than analysts’ expectation of an 8.8% contraction as lockdown restrictions were lifted and some pent-up demand was met. In the April-June period, the economy shrank 23.9%. Hopes of an early recovery are boosted as annual […]

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Government data made public on Friday reflected the contraction of the economy by 7.5% in the July-September quarter, performing better than analysts’ expectation of an 8.8% contraction as lockdown restrictions were lifted and some pent-up demand was met. In the April-June period, the economy shrank 23.9%.

Hopes of an early recovery are boosted as annual growth of 3.4% in farm sector and 0.6% in manufacturing during the September quarter is reported. Some service sectors such as trade, hotels and transport contracted at a much slower pace compared with the April-June period. Goods and services, tax collections and higher energy consumption have also witnessed a rise.

Hotel and Airline sector are also climbing up the ladder and since the end of May, when the government lifted a ban on flights, monthly domestic passenger traffic has more than doubled from 2 million in June to over 5 million in October. But that is still less from about 12 million a year ago. SMEs are responsible for 35% to 40% recovery in hotel bookings compared with pre-COVID times and between 27% and 32% recovery in flights, according to online travel agency MakeMyTrip. “Demand from large corporates and international travel will take longer to recover. Hotels catering to public sector and infrastructure companies are doing better,” said Ashish Jakhanwala, CEO of hospitality firm SAMHI.

Rural regions have not been hit as severely as big cities, and farmers have benefited from good rainfall for two consecutive years leading to a positive harvest and adequate conditions for winter-sown crops. This is further pushing sales for tractor makers like Mahindra & Mahindra. Lack of adequate and safe public transport in small towns and villages has also fostered demand for cars and motorcycles. Maruti Suzuki, India’s biggest carmaker, had a 10% growth in rural sales between July and September versus a 4% rise overall, led by small, entry-level models, said Shashank Srivastava, executive director, marketing and sales.

A recovery is slowly seeing light driven by the manufacturing sector which has moved from complete wipe-out in the July quarter and witnessing a boomerang now, said Yuvika Singhal, an economist at QuantEco Research. “Until there is a stronger recovery in high contact service sectors, which make up 60% of the GDP, agriculture and manufacturing are expected to carry the growth,” said Singhal, adding that India is still growing on a lower GDP base and it will take more than a year to recover lost output.