What a terrible year it had been for India and world as well? Recouping from the dreadful stagnation, India got into recovery mode and successfully entered the positive growth terrain as the country recorded a 0.4 per cent growth rate for gross domestic product (GDP) year-on-year (YoY) for the December quarter as against the worst-ever contraction of 24.4 per cent in the April-June 2020 quarter and negative (-)7.3 per cent for July-September quarter. Further, Indian economy is expected to grow at 11 per cent in 2021-22 fiscal. Everything seemed to be optimistic for all sections of the society until the second wave of Covid-19 surfaced as a new strain of the pandemic attacked the world and destroyed the situation worse than pre-Covid level. Maharashtra, which contributes over 13 per cent to India’s GDP, is heading for a total lockdown. The situation is no different for other states too. India completed one year since lockdown was imposed for the first time on March 24, 2020, now is heading for localised lockdowns across the country.
Industrial output may rise
Government’s think tank NITI Aayog shrugged off any adverse impact on the factory output as industrial activities in India may gather further momentum on account of increase in government capital expenditure, ongoing Covid-19 vaccination drive, and resolute push to long-pending reforms. NITI Aayog CEO Amitabh Kant said: “India did suffer a massive impact due to Covid-19 across the economy and society. Fiscal, financial and long-term structural reforms were adopted which promoted a rapid V-shaped recovery. Industrial activities are expected to gather further momentum on account of increase in government capital expenditure, accelerate Covid-19 vaccination drive and resolute push to long-pending reforms.
India is the only country that has adopted structural reforms to expand supply in the medium to long term. India remained a preferred investment destination even while the pandemic was raging.”
Net foreign direct investment (FDI) inflows into India reached an all-time monthly high of $9.8 billion in November 2020. The NITI Aayog CEO further added that in Covid-19 pandemic times, the role industry across sector has played is pivotal in providing innovative and engaging solutions leading to a collective and inclusive ecosystem. Kant said it is heartening to see the foreign businesses and institutions also actively and willingly contributing towards the Sustainable Development Goals (SDG) acceleration in India. He added that India currently looks at aggressively expanding its renewable energy programme. The country has made a global pledge as part of the nationally determined contributions to have 40 per cent of cumulative electric power installed capacity from non-fossil fuel sources. Kant said energy is a priority area for the UK industry in India. "We are sure that our structural and regulatory reforms would ensure a congenial business environment for global investors," he said. Also, participating at the event, UNDP India Resident Representative Shoko Noda said UNDP has been actively supporting India to work towards the SDGs
Rising virus cases a big risk
At a time when not only government and industry, but common people were in jubiliant mood over returning to normalcy, the second wave of Covid-19 started dampening the prospects of recovery from the depths of the lockdown-induced recession as spike in number of coronavirus cases is threatening to the growth prediction of 11 per cent for the Indian economy for 2021-22 financial year.
The lockdown brought the economy to a halt as factories were shut, trains were stopped and flights were suspended. Entire day-to-day life was a standstill pushed the economy into a rare recession. However, the India’s GDP rebound was better than expected, with growth rate surpassing its pre-pandemic level in the December quarter, growing 0.4 per cent year-on-year. The rebound led to the Centre forecasting a sharp 'V-shaped' recovery. However, the spike in coronavirus cases, despite the rollout of a nationwide vaccination drive, in recent weeks could hurt the recovery.
Growth hinges to vaccination drive
“Unlike other Covid-hit regions like Europe, India has so far been reluctant to impose any more harsh restrictions. In many countries including India, second or third Covid wave has led to partial or localised lockdowns delaying the pace of recovery,” says DK Srivastava, Chief Policy Advisor, EY India. Srivastava further added that “it’s the rate at which the population gets a vaccination cover, which will determine the performance of the economy in FY22. Fortunately, for India, the rate of vaccination is gathering momentum and a strong growth supporting fiscal policy has also been put in place through Centre's FY22 budget. The expectation is that India would show one of the largest bounce backs in the growth rate in FY22," he said. Echoing similar views, ICRA Principal Economist Aditi Nayar said "COVID-19 infection counts have risen in many Indian states in recent weeks, spurring fresh localised restrictions. If this trend proliferates, it would temper the extent of the base effect-led recovery anticipated in the immediate term, and may lead to some supply-side disruptions." At this point, business confidence is improving significantly and it seems that we will be on track towards growth despite COVID and businesses have realised that we must learn to live with COVID and its impact as we fuel the economy for growth, said L Viswanathan, Partner at Cyril Amarchand Mangaldas. To mitigate the impact of COVID-19 pandemic on the economy, the government and the RBI came out with a series of packages in a phased manner totalling around Rs 30 lakh crore or 15 per cent of India's GDP. Steps taken by the government to deal with COVID pandemic are resulting in a 'V-shaped' economic recovery and the country is likely to witness double digit growth in 2021-22, Minister of State for Finance Anurag Singh Thakur said in Lok Sabha last week. He said the government focused on saving lives during the pandemic without bothering about the fiscal deficit. In the next fiscal, the Budget has earmarked Rs 35,000 crore for vaccination and the government has assured to provide more if needed. "The GST collection in the last five months was continuously more than Rs one lakh crore... Because of the steps taken by the government during COVID-19, V-shaped economic recovery is happening. And world over, agencies have stated India will witness double digit growth in 2021-22," he had said.
Soon after the pandemic hit the country, the Prime Minister Narendra Modi-led NDA government in March 2020 announced a Rs 1.70 lakh crore Pradhan Mantri Garib Kalyan Yojana (PMGKY) to protect the poor and vulnerable from the impact of health crisis and lockdown. Other relief measures were to the tune of Rs 22,000 crore. It was followed by the Aatmanirbhar Bharat Abhiyan package in May 2020 largely focussed on supply-side measures and long term reforms. The five-part stimulus package announced by Finance Minister Nirmala Sitharaman beginning May 13, 2020 comprised Rs 5.94 lakh crore in the first tranche that provided credit line to small businesses and support to shadow banks and electricity distribution companies. The second tranche included free foodgrain for stranded migrant workers for two months and credit to farmers, totalling Rs 3.10 lakh crore. Spending on agri infrastructure and other measures for agriculture and allied sectors in the third tranche totalled to Rs 1.5 lakh crore. The fourth and fifth tranches that dealt mostly with structural reforms, including relaxation of Foreign Direct Investment (FDI) limit in defence, privatisation of six more airports, and fully opening up coal mining to the private sector. To boost consumption during the festival season, the government October, 2020 announced measures of close to Rs 73,000 crore to stimulate consumer spending in an effort to rein in slowdown due to the Covid-19 pandemic. Aatmanirbhar Bharat Abhiyan 3.0 unveiled in November 2020, ahead of Diwali, was Rs 2.65 lakh crore. Of the total, the maximum of Rs 1.45 lakh crore was allocated to give a boost to manufacturing, followed by Rs 65,000 crore for agriculture (fertiliser subsidy), and Rs 10,200 crore for industrial infrastructure, incentives and domestic defence equipment. On its part, RBI made liquidity infusion to the tune of Rs 12,71,200 crore into the Indian economy battered by COVID-19 pandemic till October 2020. All the stimulus measures since March 2020 by the Centre and Reserve Bank of India put together were to the tune of Rs 29,87,641 crore. As a result of all these measures and decline in COVID infection, the economy is showing green shoots and a positive growth of 0.4 per cent in the third quarter of the ongoing financial year is an indication of rebound. However, the economy in the current year is estimated to contract by 8 per cent on account of the COVID pandemic.
Normal situation not in horizon
The CEOs of the multinational companies (MNCs) are planning to take remedial measures to tide over the second wave of Covid-19. As per the KPMG CEO Outlook-2021 survey, half (45 per cent) of global executives don’t expect to see a return to a ‘normal course of business’ until sometime in 2022, as opposed to nearly one-third (31 per cent), who anticipate this will happen later this year.
As the unexpected changes caused by the new strain of pandemic made one-quarter (24 per cent) of CEOs to change their business model.
The study conducted by KPMG during February-March 2021 contacted 500 global CEOs on their feedback to the pandemic and the outlook over a 3-year horizon. A majority (55 per cent) of CEOs voiced concerns about staff, access to a Covid-19 vaccine, which is influencing their outlook of when employees will return to the workplace.
Majority (90 per cent) of CEOs have asked their employees to report back to duty after vaccinatation, which may help organisations consider measures to protect their workforce. However, one-third (34 per cent) of global executives are worried about misinformation on Covid-19 vaccine safety and the potential this may have on employees choosing not to have it administered.
Bill Thomas, global chairman & CEO, KPMG, said: “Before any major decisions are made, CEOs want to be confident that their workforce is protected against this virus. The Covid-19 vaccine rollout is providing leaders with a dose of optimism as they prepare for a new reality.
CEOs are scenario planning for difference across certain key markets that could impact their operations, supply chains and people, leading to uneven economic recovery. Our research shows that some executives have taken strong measures during the crisis to transform their operating model and ways of working, accelerating the rollout of key transformational projects, some by choice, some out of necessity. The pandemic has also been a catalyst for CEOs to evaluate the role their companies play in society. Many have given voice to issues they may not have previously commented on publicly - from tackling climate change to supporting the diverse communities they operate in - and we need to keep hearing those voices. There is much more to be done.”