Unlock 5.0: Optimism returns, India Inc sees signs of recovery in economy

Some caution this is mere pent-up demand; others say it is sustainable and growing

After months of gloom, there is finally some optimism. The heads of some of the country’s top companies say they see signs of recovery in the economy, which, they feel, will gradually grow as business activity picks up. Their confidence comes with India fully opening up businesses under Unlock 5.0.

A survey by the Confederation of Indian Industry (CII) last week shows that chief executive officers (CEOs) expect over 50 per cent capacity utilisation in the second half of FY21, driven by a revival in business and consumer sentiment.

Sectors from fast-moving consumer goods (FMCG) to automotive, cement and steel are all showing signs of an uptick in the September quarter (Q2), though some industry leaders caution that this is nothing more than a result of pent-up demand.  

“Current retail sales have been lower than the corresponding period last year. This is indicative of a slow release of what’s pent up. Where’s the question of real demand?” asks Rajiv Bajaj, managing director (MD), Bajaj Auto, who has been a vocal critic of the lockdown and its impact on business.

“I’m still anxiously awaiting the first stimulus package, even while in the last three months of unlock we have been hobbled by several inimical overnight policy changes, including the retrospective withdrawal of the MEIS (Merchandise Exports from India Scheme) and the myopic ban on Chinese imports,” he adds.

R C Bhargava, chairman, Maruti Suzuki, agrees that the ongoing revival is a result of pent-up demand. “We don’t see a problem (of demand sustaining) till December. But at this stage, we are not willing to make a forecast beyond December because there is still a lot of uncertainty due to Covid-19,” he says.

The Reserve Bank of India (RBI) said on Friday that it was prioritising growth over managing inflation, adding that the economy would bounce back to positive in the fourth quarter of FY21 with a 0.5 per cent growth.

India’s gross domestic product (GDP) slipped by a sharp 23.9 per cent in the April-June period on account of a strict lockdown. The RBI’s Monetary Policy Committee said that the GDP would decline at a slower rate (9.8 per cent) in the September quarter, and Q3 would see an even lower decline (5.6 per cent).

Some, like Marico Chairman Harsh Mariwala, are confident that the demand will be sustainable — if economic activity continues to improve. “In FMCG, there is no pent-up demand now. We are seeing more economic activity. The contraction in the GDP is reducing. Things are getting back to normal. So, purchasing power will improve as economic activity improves,” he says.

Others, such as Tata Steel MD and CEO T V Narendran, strike a note of cautious optimism. “The economic recovery is sustainable, but that does not mean demand can run on its own,” he says. “It will need nurturing for some time. I will look forward to more of the planned infrastructure spends translating into work on the ground as that will help the economy come back on track.”

The steel sector, said ratings agency ICRA, was seeing early signs of revival, supported by the easing of mobility restrictions and a gradual improvement in domestic demand. Cement firms, too, have seen demand improve in September across most regions, with mid-single-digit growth likely in Q2, say analysts at ICICI Securities and Edelweiss.

Endorsing this, Dalmia Cement MD and CEO Mahendra Singhi, who is the president of the Cement Manufacturers’ Association, says, “Real estate projects are opening up in urban areas, and the rural market continues to be strong. The demand does look real as people are learning to work with precautions. Business will continue to pick up slowly.”

Green shoots are visible in the economy, agrees Ashok Leyland MD and CEO Vipin Sondhi. “This is not only in the auto sector, but also in other industries. We expect that every month and quarter from Q2 will be better than the previous period. Segments like intermediate commercial vehicles and light commercial vehicles are showing a revival in particular. So are tippers for the construction sector.” He adds that demand for commercial vehicles is expected to grow in tandem, at least during the festive season.

If there was uncertainty around the festive season earlier, it has reduced, says Singhi. Shree Cement MD H M Bangur agrees: “The mood is quite positive — not just for cement, but also for other sectors and spending in general.”