Indian economy showing broad based signs of recovery

///Indian economy showing broad based signs of recovery

Indian economy showing broad based signs of recovery

Indian auto, consumer durables, FMCG, steel and services sector companies are feeling cautiously optimistic about the future once again. They are stepping up fresh investments, handing out pay hikes and paying the government higher taxes in the form of GST.

There’s more evidence that the Indian economy is on the road to recovery. The country’s massive automobile sector, which had been languishing for several quarters has roared back to business, the services sector is gaining steam, GST collections are showing an uptick and the steel, consumer durables and fast moving consumer durables sectors are once again throbbing with activity.

GST collections are on the rise

It isn’t just anecdotal evidence from various sectors that are pointing to an uptick in demand and growth. Goods and service tax (GST) collections in October rose 10 per cent to more than $14 billion against $13.1 billion in October last year. This is the highest GST collection figure since February.

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Indian economy showing broad based signs of recovery

Goods and service tax (GST) collections in October rose 10 per cent to more than $14 billion against $13.1 billion in October last year. Goldman Sachs has forecast a full-blown economic recovery next year.

The investment bank has forecast a growth of a massive 27.1 per cent in the first quarter of the next financial year due to a favourable base effect and the full reopening of the economy.

The October collections marked the second straight month of growth for GST collections, indicating a return of demand, which had remained subdued for several months as a result of the Covid-induced slowdown.

Leading tax experts said the large increase in the number of returns filed and the clearly visible improvement in demand across sectors points to a nascent recovery in the Indian economy and indicates that things are gradually returning to normal.

This prognosis is validated by Goldman Sachs, which has forecast a full-blown economic recovery next year.

87 per cent of companies plan pay hikes next year

In yet another indication that the gloom of the preceding months and quarters is slowly being replaced by a cautious optimism, a survey of 1,050 companies across 20 industries by Aon, a leading global professional services firm providing a broad range of risk, retirement, and health solutions, showed that as of September-October this year 87 per cent of them plan to hand out pay hikes next year. The figure for the current year is 71 per cent.

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“Despite the gravity of the COVID-19 pandemic in India and its deep impact on the economy, organisations in India have shown tremendous resilience and a mature view on talent,” Nitin Sethi, CEO of Aon’s Performance and & Solutions Practice in India, told the media at the release of the survey.

“Business and HR leaders made hard decisions in second and third quarters of 2020 and are now betting on the green shoots of improving consumer demand. They see the need to invest in talent as a critical part of their recovery and growth prospects,” he added.

Mahindra factories are buzzing

Indian economy showing broad based signs of recovery

The recovery of the auto sector, which accounts for about 40 per cent of organised sector industrial employment in the country, will play an important role in putting the overall economy back on track.

Emblematic of this return of consumption demand in the economy is the massive bookings received by Mahindra & Mahindra for its new SUV, Mahindra Thar. The company announced last week that it had received more than 20,000 bookings for this four-wheel-drive off-roader within a month of its launch.

As a result, the waiting period for the model is now five to seven months, M&M said in a statement. This is unprecedented in the recent history of the Indian automobile sector.

To meet this huge demand, the company is working overtime to fast track the process of increasing production capacity at its Nasik facility. It is also working with its feeder industries to remove supply bottlenecks and smoothen out logistics hurdles to bring this waiting period down.

“We are overwhelmed with this unprecedented response that the all-new Thar has garnered. I must admit the response has surpassed all our expectations and production capacities,” Veejay Nakra, CEO of M&M’s Automotive Division told the media.

“We had planned for a capacity of about 2,000 vehicles per month and are now getting ready to ramp it up to 3,000 by January. This would help us bring down the waiting period to a reasonable timeline,” he added.

Other car makers witness demand spike

Indian economy showing broad based signs of recoveryM&M isn’t the only car maker that is making hay. Others such as Maruti Suzuki, India’s largest passenger vehicle (PV) company, Hyundai Motor, the second largest PV maker and Mercedes Benz India, the country’s largest luxury car maker, all recorded double-digit growth over last year’s figures during the 10-day Navratri festival period that ended last month.

Then, Kia Motors India has received over 50,000 bookings in two-and-a-half months for its newly launched sub-compact SUV Sonet. A new Sonet is being booked every three minutes.

The recovery of the auto sector, which accounts for about 40 per cent of organised sector industrial employment in the country, will play an important role in putting the overall economy back on track.

Indian economy showing broad based signs of recovery

With sales of consumer durables spiking up the likes of Samsung, LG and Panasonic, among others, are ramping up production to feed this demand.

Consumer durables back in business

A similar trend is visible in the Indian consumer durables sector. Industry executives said there is a renewed demand for smart phones, TVs, washing machines, microwave ovens, air-conditioners and refrigerators. Result: Like the auto companies, the likes of Samsung, LG and Panasonic, among others, are ramping up production to feed this demand.

Revival in steel sector

Indian economy showing broad based signs of recovery

Due to the demand for cars and white goods the steel sector is getting energised with production of flat steel going up in cases.

All these sectors are big users of various grades of steel, a major primary industry that many analysts say is a proxy for an economy’s wellbeing. Thanks to rising demand for cars and white goods and the Narendra Modi government’s determined push for infrastructure projects, the demand for steel is rising in India.

Consequently, Tata Steel, India’s largest steel maker, is operating at 100 per cent capacity for the first time in several months. Production of flat steel at JSW Steel, another major steel maker, has risen 15 per cent rise over the comparable figure last year and crude steel output is up 5 per cent.

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FMCG companies are stepping up investments

In a pointer to the broad-based recovery across sectors, FMCG companies such as Hindustan Unilever, PepsiCo, Britannia and Nestle are stepping up investments to meet the surge in consumption demand.

Nestle, PepsiCo, HUL and Britannia are all stepping up fresh investments to add capacity across their existing and new factories across India.

Services sector grows for the first time in eight months

There’s more good news coming from other critical segments of the Indian economy. The services sector, which accounts for almost 60 per cent of the country’s GDP, expanded in October, the first time it has recorded a growth in eight months.

The IHS Markit Services Purchasing Managers’ Index came out of contraction zone during the month under consideration. It recorded a reading of 54.1 in October compared to 49.8 in September.

Any reading above 50 indicates expansion, while a score of less than 50 points to a contraction.

Indian economy showing broad based signs of recoveryIn a media release, Pollyanna De Lima, economics associate director at IHS Markit, said: “It’s encouraging to see the Indian services sector joining its manufacturing counterpart and posting a recovery in economic conditions from the steep deteriorations caused by the COVID-19 pandemic earlier in the year…. Service providers signalled solid expansions in new work and business activity during October. They were also more upbeat about the outlook, though hopes of output growth in the year ahead were pinned on a COVID-19 vaccine.”

Indicating overall growth, the composite PMI, which includes both manufacturing and services, rose to 58.0 last month, the highest level it has scaled since January 2012.

Economy may have turned the corner

Indian economy showing broad based signs of recoveryThe positive news and the rosy projections coming from various sectors and analysts should not, however, lull anyone into a sense of complacence. Despite the recent green shoots of growth, the fact remains that the Indian economy is the midst of a deep contraction.

The Reserve Bank of India (RBI), Moody’s, IMF and the have all forecast a 9-11.5 per cent fall in GDP in the current fiscal.

Despite that caveat, most analysts are convinced that the worst is behind us and that the Indian economy may have bottomed out.

They are keeping their fingers crossed and hoping that the demand and consumption spike witnessed in recent weeks sustain beyond the ongoing festive season.

About the Author: Arnab Mitra