Category: Economy

Online retailers in India are expected to generate approximately $6.5 billion (Rs 47,751 crore) in sales during the festive month (October 15-November 15), with around 5.5-6 crore online buyers participating, a new report forecast on Thursday.

About 75 per cent of these sales will occur from October 15-21, the period in which Flipkart will hold its ‘Big Billion Days’ event and Amazon’s ‘Great Indian Festival’ sale will start on October 17, according to the report by global market research firm Forrester.

“The growth in online retail spending during the festive month will see a growth of 34 per cent (year-over-year),” said Satish Meena, Senior Forecast Analyst.

There has been a fundamental shift in buying behaviour, with consumers having developed a general averseness to go out and latched on to online channels.

“The inhibitions of buying online are gone, and a transformation that would have taken two years has happened in five months. With sharp contraction in the economy and a pressured job market, consumers flocked to online channels to get the best bargains,” Meena elaborated.

Some pent-up demand from the lockdown period was let out during the Prime Day sales event in August, but “we expect a lot of demand in consumer electronics, home appliances, smartphones, and home furnishing to drive more sales during the festive month”.

“We also expect an increase in share of purchase from tier 2 and 3 cities due to migration of employees to smaller cities as offices are closed,” said Sanjeev Kumar, Forecast Analyst at Forrester.

Due to Covid-19 and the ensuing lockdown, retail and recreation-related mobility saw its highest decline for the month of April.

Most of these are likely to be micro, small, and medium enterprises, which are increasingly recognising a greater potential for sales as the pandemic drives more people to shop online.

“Attractive festive deals and product discounting along with flexible payment options will boost affordability for consumers, hence making it another successful festive-year period for e-tailers in India,” he added.

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Fall in external remittances is likely to affect the consumption demand, according to the India Ratings and Research (Ind-Ra). The rating agency on Thursday also said that muted external remittances growth is more of a structural issue than transitory.

According to Ind-Ra, the muted growth would further weaken aggregate consumption demand, though the impact will be restricted to few states, given their skewed shares in foreign remittances.

“On the macro front, a considerable flow of remittances directly impacts aggregate demand and thus banking sector deposits,” the agency said in a report.

“Meanwhile, banks with a higher non-resident Indian (NRI) deposit ratio in the total portfolio will be better able to hedge their risk than others, as the overall banking sector deposits are stable along with muted credit offtake.”

Historically, India has remained as the largest receiver of remittances in the world; however, the share of remittances as a percentage of gross disposable income receded to 2.5 per cent in FY19 from 3.5 per cent in FY10.

“Foreign currency non-resident (FCNR) has witnessed a year-on-year fall in deposits, whereas overall NRI accounts have reported an increase,” the report said.

“However, in Ind-Ra’s rated portfolio, The Federal Bank Limited (‘IND AA’/Stable) and The South Indian Bank Limited (‘IND A’/Negative) have reported subdued growth in NRI deposits.”

The agency opined that the key risk for banks will only emerge if the fall in deposits will continue amid an increase in withdrawals due to the factors induced by pandemic.

“At the same time, banks will be able to manage this risk better with the help of improved domestic deposits amid muted credit growth,” the agency said.

It added that in spite of the muted external remittances, the impact would largely be restricted to the aggregate consumption level in the first order.

“The agency believes the buoyancy in foreign capital flows would compensate the requirement of capital,” it added.

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Despite the pandemic triggered financial crisis, India might witness an increased spending on electronics during the coming festive seasons. A recent study has revealed that a good majority of the people are saving money to spend on white goods.

More than 3 in 4 Indians have been saving in the past few months to splurge on electronics and gadgets this festive season, according to ZestMoney, an AI-driven EMI financing and Paylater platform.

The pan-India survey which received approximately 12,200 responses suggests that 74 per cent of the respondents said they have been saving for the upcoming festive season.

While 48 per cent said budgets have been impacted this year, 80 per cent of those surveyed wish to choose EMI options to plan their finances better this year.

“It is interesting to note that 52 per cent of them revealed that they planned to spend more or the same as they did last year,” the findings showed.

While 42 per cent plan to visit retail stores in coming months, 52 per cent said they will prefer online gifting for family and friends.

“Online habits of consumers are here to stay with the boom in demand for e-commerce services. COVID-19 has not only changed how people plan their purchases but how they want to fund them too,” said Lizzie Chapman, CEO and Co-founder of ZestMoney.

“Some of our partners have witnessed a 100 per cent increase in EMI transactions signalling the importance of affordable solutions in boosting demand. There is increased interest in Buy Now, Pay Later solutions especially for big ticket items,” Chapman added.

Affordability solutions play a crucial role in these times as people cope with the economic uncertainty induced by COVID-19.

The online medium continues to be the preferred choice, with 62 per cent respondents planning to shop online for most of their needs.

“We have noticed that people want to plan their finances better and that same trend is playing out in the survey”, Chapman said.

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Persistently high inflation fanned in part due to supply side disruptions along with seasonal factors led the Reserve Bank of India to maintain the key lending rates.

Accordingly, the Monetary Policy Committee of the central bank in its penultimate meet for 2020, decided to maintain the repo rate – or short-term lending – rate for commercial banks, at 4 per cent.

Besides, the reverse repo rate stands unchanged at 3.35 per cent, and the marginal standing facility (MSF) rate and the ‘Bank Rate’ at 4.2 per cent.

The MPC voted to maintain accommodative stance, thus opening up possibilities for more future rate cuts.

It was broadly expected that the RBI’s MPC might hold rates as recent data showed that retail inflation has been at an elevated level during June.

“The MPC evaluated domestic and global macroeconomic and financial conditions and voted unanimously to leave the policy repo rate unchanged at 4 per cent,” RBI Governor Shaktikanta Das said.

“It also decided to continue with the accommodative stance of monetary policy as long as necessary – at least during the current financial year and into the next year – to revive growth on a durable basis and mitigate the impact of COVID-19, while ensuring that inflation remains within the target going forward.”

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Continued focus on reform measures ushered in by the government even as the country faces one of its toughest crises during the pandemic, will trigger a faster recovery of the economy with the industry reposing confidence of a bounce back sooner than expected, Confederation of Indian Industry (CII) president Uday Kotak said.

Talking about the state of the economy post the unlock phase, Kotak said there was now a big departure from the depressed mood that had gripped the industry during the early stages of lockdown.

“The industry now sees their sectors seeing a better pick up and capacity utilisation than what they had projected in March 2020. While in the first few weeks post the lockdown, the pickup was attributed to pent up demand, the sustenance of demand particularly in some non-essential sectors have lifted hopes of a faster recovery,” he said.

The CII president said that the determination by the government to meet the challenges by pushing through some long pending reforms like the labour reforms and those for the farm sector apart from the call for an Atma Nirbhar Bharat have helped improve the confidence of the industry.

With the further easing of restrictions and successive unlocking of the economy initiated from June, most of the high frequency data points have shown a continued normalisation in activity levels, as compared to the multi-year lows seen in April.

“The robust performance of merchandise exports can be largely ascribed to the industrial units being able to function with greater capacity in September, as restrictions on mobility were eased and local lockdowns were fewer. Slowly improving global trade is also helping on the margin,” said Kotak.

The fewer localised lockdowns have also resulted in the industrial activity now moving into an expansion territory. On a sequential basis, manufacturing purchasing managers index (PMI), which is a widely tracked indicator of business activity jumped to 56.8 in September – a eight year high – from a low of 27.4 seen in April.

“This is indicative of the fact the manufacturing sector is slowly but steadily moving towards stabilization and portends well for the recovery prospects of the critical sector,” Kotak added.

The improvement has also been seen in services PMI, with the index value recuperating from a low of 2.0 in April 2020 to 49.8 in September. The improvement seen in domestic PMIs is broadly been in line with the recovery process seen in global PMIs as well.

Among the specific manufacturing sectors, significant improvement in construction equipment has been witnessed after poor performance in April.

After a 30 per cent jump in sales in July, August was one of the best in 40 years. Big demand from the rural sector and investments flowing into the rural sector are translating into sales.

The sales of passenger vehicles have also bounced back to record a year-on-year growth of 14.2 per cent in August, which might get a further boost due to the forthcoming festive season. The improvement in sales of construction equipment and passenger sales point towards recovery process in investment and consumption respectively which has been set in motion.

“This year, the agriculture sector has emerged as a beacon of hope for India’s economy, with a normal and largely well-distributed monsoon and record food-grains production cushioning the rebooting of the economy. A concerted action plan from the government to support the rural sector in the form of Agri-Infrastructure Fund and other key reforms in the sector have also supported the sector”, highlighted Kotak.

While agriculture does not have the heft to offset the sharp contraction in non-agricultural sector (accounting for 85 per cent of GDP), it punches more than its weight in GDP – its share in employment remains the highest at 44 per cent and is a critical supplier of much-needed nutrition during the pandemic. The high frequency indicators in the sector, such as fertiliser sales, tractor sales have all shown an improvement in September over the lows seen in April.

Specifically, the tractor industry is now producing at full capacity with bullish sentiment across villages. The tractor sales have recorded an impressive jump over the months, with August seeing a jump of 75 per cent from -79 per cent in April. However, the supply chain disruptions are still a cause for concern.

The bulwark of the economy, the services sector has shown some encouraging signs of recovery as well. With a contribution of over 60 per cent in GDP, for the economy to stage any meaningful bounce-back, the services sector must take the lead.

Despite Covid-19 inflicting deep pain in certain sub-sectors of services like tourism, hotels & hospitality, aviation among others, early signs from the sector are pointing towards resurgence in a few pockets.

For example, railway freight traffic improved 15 per cent in September, with further improvement expected in the subsequent months due to growth in movement of goods on the National Highways.

The latter also resulted in electronic toll collections picking up pace to Rs 17.1 billion in August 2020 from Rs 2.5 billion seen in April 2020.

“Though still early, these are indeed promising signs, pointing towards some semblance of a recovery process taking shape in the various sectors. Going forward, we expect economic activity to continue to normalise further in the coming months,” added Kotak.

Specifically, resilience in the rural economy, helped by a buoyant monsoon season and government spending coupled with an accommodative monetary policy environment is expected to cushion economic activity.

However, our expectation hinges on the fact that there will be no second wave of the pandemic in the ensuing months, he said.

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