The second wave of the COVID-19 pandemic that hit India during April-May 2021 was extremely intense and impacted the functioning of businesses, which had just started moving on the path towards normalcy after the end of the first wave. The swift pace at which the virus travelled across the nation led to a sudden jump in the overall infections with daily new case load touching new highs and putting enormous pressure on the country's healthcare system. To break the chain of transmission, unlike last year when the country went into a national lockdown, this time state governments prioritized micro-containment zones and localized lockdowns based on the evolving situation on the ground. While such measures were necessary, these did have an impact on economic activities.
A nationwide survey of businesses conducted by FICCI and Dhruva Advisors shows that 58% of the companies saw a 'high impact' on their businesses due to the state level lockdowns. Another 38% reported 'moderate impact' on their operations due to the state level lockdowns. With different parts of the country under different sets of restrictions and consumer sentiment impacted due to the ferocity of the second wave, an evident dip in demand was witnessed by companies. 58% of the surveyed companies reported 'weak demand' as the biggest challenge they are facing under the current environment. This was followed by 'managing costs' (56%) and 'tight financial liquidity' (43%) that emerged as other significant issues companies have to deal with in the present situation.
This time it was not just demand in urban areas that was constrained but even the rural areas saw a compression in demand with 37% of the companies reporting a 'high impact' on their sales in rural markets. The weak demand situation impacted capacity utilization with 40% of the companies seeing utilization rates of less than 50% of their installed capacity.
While the impact of the second wave induced lockdowns on businesses is clearly visible, there is a silver lining on the horizon. This relates to expectations about business performance over the next 6-12 months. With different states getting into the 'unlock' mode, there are immediate indications of improvement in economic activity. This trend is also reflected in the expectations companies have regarding capacity utilization over the next 6-12 months. Survey results show that nearly 63% of the companies foresee utilization rates to be over 70% in the next two to four quarters.
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