Lockdown 5.0 is set to give significant relaxations in non-containment areas, but private consumption is unlikely to see a surge in the coming months with most people worried about pay cuts, job losses, migration and continuing to avoid public places.
Private consumption, which accounts for close to 60 per cent of the GDP and was showing some pick up in the second and third quarter of 2019-20, grew by a record low of 2.7 per cent in the fourth quarter of last fiscal.
While there was just one week of lockdown in the period, economists and analysts warn that the picture will remain grim in 2020-21, especially in the first quarter and there may be need for more stimulus measures from the government.
“With Indian going into Lockdown 5, we believe such consumer savings will continue to surge. …This time more than 10 per cent of the fiscal package has been in the form of transfer to individuals. However, so far the Government consumption has been much more restrained in this package and it is more about supporting businesses through liquidity,” noted a report by SBI Ecowrap, adding that a study pegs the value of capital expenditure impact multiplier in India at 2.45.
“The present situation warrants more cash transfers and increased capital expenditures however, as the crisis is at an unprecedented scale and has severely impacted peoples’ ability to eke out a livelihood,” it further said.
Analysts said the slowdown in private consumption, which was seen in fourth quarter of 2019-20 is just the beginning and will continue this fiscal and impact overall GDP growth.
The economy grew by 3.1 per cent in the fourth quarter of 2019-20, which was the slowest pace in 11 quarters.
India Ratings too noted that the near-absence of demand-side measures in the economic package of ₹20.97 lakh crore will jeopardise recovery even in 2021-22 and 2022-23 and may even lead to a second round impact on the economy.
“Salary cuts, job losses, reverse migration due to the lockdown have only added to the dwindling consumption demand, already reeling under the reduced income growth of households coupled with a fall in savings and higher leverage over the past few years,” it noted, adding that the Covid-19 related lockdown and its impact on economy and livelihoods have only aggravated the sagging consumption demand.
B Gopkumar, Managing Director and CEO, Axis Securities stressed that the pace at which demand will be restored to normalcy is critical. “There have been some encouraging signs in consumer staples, digital businesses and Pharmaceuticals. However, large ticket consumer discretionary revival will take time. Overall, businesses have drawn plans to deal with the situation and economy will improve from hereon and demand will pick up with each passing month,” he said.
Nominal GDP for Q4FY20 points towards private consumption growth slowing down to over 5-year low of 7.7 per cent y-o-y. For the slowdown in private consumption, this looks just like a beginning as even after lockdown, the income loss and labor migration would take a while to smoothen out.