Connect with us

Headlines Of The Day

Virus jolt for middle class to delay consumption revival

Revenge spending by the urban middle class, which helped the country swiftly ride out the recession last year, may fail to rescue the economy this time around as households belonging to this cohort have been hit the hardest by the second wave, economists said.

The first wave of the pandemic and the abrupt nationwide lockdown that followed caught the poor off-guard, with hundreds of thousands of families having to dip into their savings to save lives amid shortages of medicines and oxygen.

Economists said demand revival might take longer this year, given the scale of devastation in affluent households. While the affluent class is a small slice of India’s 1.3 billion population, it accounts for a giant share of the discretionary consumption. “This not only implies an immediate setback to discretionary consumption but also higher out-of-pocket medical expenses, and precautionary savings,” a report by QuantEco Research said on 17 May.

As the first wave ebbed, the report pointed out that consumer durables demand was quick to overtake pre-covid levels due to a combination of festive and pent-up demand in the December quarter, partly financed by forced savings during the nationwide lockdown. However, such a demand recovery may remain limited in FY22 as part of the pent-up demand may have already been exhausted in these categories, economists at QuantEco Research said.

A 24 April Bloomberg report said over 170,000 households in Mumbai are in buildings sealed by authorities compared to 120,000 slum households in containment zones. This indicates a higher rate of spread in high-income households during the second wave.

During the first wave, 34% of cases were in residential buildings compared with 90% this time around, Pranjul Bhandari, chief India economist at HSBC, wrote in her Mint column on 17 May.

The lockdowns announced by states to contain the spread of the virus also do not augur well for demand. For a consumption-driven economy, the imposition of lockdowns is a significant blow. According to an analysis by brokerage CLSA, the 16 states that have imposed restrictions account for nearly 90% of India’s gross domestic product.

The central bank, too, is worried about the demand shock caused by the second wave. High-frequency indicators for April and May are scanty given data lags. Still, they suggest the biggest toll of the second wave is in terms of a demand shock—loss of mobility, discretionary spending and employment, besides inventory accumulation, RBI said in its May bulletin.

“Aggregate supply is less impacted,” it said.

The pandemic has brought about significant shifts in consumer behaviour globally. In India, the current surge is manifesting in different ways, prompting Indian households to skimp on discretionary expenses as they focus on essentials and save up for any unexpected medical expenses. According to a KPMG survey, consumers across demographics in India are prioritizing their finances and becoming more savings-oriented a year after the covid outbreak. More than 50% of those surveyed by KPMG said they had started investing more in saving instruments post-pandemic.

Some analysts said that while the lockdowns are not as stringent as the previous year, some sectors will be more affected. “Select pockets of demand, which are directly impacted like consumer retail, travel and tourism, would take an immediate hit from a demand perspective,” said Amit Shah, head of India equity research, BNP Paribas. Adding to the worries is that villages, which were largely insulated from the pandemic’s impact in 2020, has been affected this year. With a rickety health infrastructure in most villages, the spread will be difficult to contain. Livemint

Click to comment

Notice: Undefined variable: user_ID in /home/cloudpanel/htdocs/ on line 49

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2021 TV Veopar Journal

error: Content is protected !!