Prime Minister Narendra Modi, in an opinion piece published in the national media, described India’s vaccination journey as one from “anxiety to assurance”. The unprecedented vaccination drive, which has seen the delivery of more than one billion doses of the Covid vaccine and has already covered 70 per cent of the eligible population with at least one dose of the vaccine, has helped the country emerge stronger and more confident.
This newfound confidence – to step out into the world in search of work or pleasure without the lurking fear of the virus – has had an immediate and perceptible impact on the economy. Confirmation of this came from the growth predictions issued last week by to respected institutions – the International Monetary Fund (IMF) and our own Reserve Bank of India (RBI), both of which pegged the GDP growth rate for the ongoing financial year at 9.5 per cent, making India the fastest growing economy in the world.
This will be music to the ears of Indian businesses, particularly consumer-facing ones, since this newfound assurance coincides with the most productive and intense part of the year, the post-harvest festival season. Rural demand will be strengthened by a good harvest following a strong monsoon, while urban consumption will be surging as lockdown-induced restrictions become a thing of the past.
A number of indicators appear to suggest that this is indeed happening. The Google Mobility Index is back to near pre-Covid levels, particularly mobility connected to consumption drivers like shopping and recreation. Most workplaces have resumed physical attendance, albeit largely in a hybrid model. Reflecting this, tax collections have grown, with GST collections reflecting the uptick in consumption demand and are 12.5 per cent higher in the first half of the current fiscal, compared to the same period in 2019-20 in the pre-Covid-19 period.
While consumer durables sales are expected to see double digit growth, the festive season will be crucial for the automobile industry as well, while online retailers, who have already kicked off their festive sales, expect a 40 per cent jump in sales. All this activity is being driven by a resurgence in consumer credit. With several fintech companies using technology and real time big data to drive consumer credit, the ‘buy now, pay later’ market is booming. With new regulatory changes facilitating digital lending, the buying power of the Indian consumer has got a force multiplier.
There are, however, a few issues of concern. One is that inflation is stubbornly high. With prices of essentials, particularly food items and edible oils surging, high inflation could be a demand dampener. Added to this the looming energy crisis driven by a coal shortage, as well as global supply chain bottlenecks like a hold-up in container movements and a global shortage of semiconductors pose risks.
The government will have to move deftly to ensure that these supply-side issues are resolved smoothly and the ‘animal spirits’ of the Indian consumer are unleashed. At the same time, the battle against Covid is by no means won and there is every possibility of a third wave, unless all of us, as citizens and consumers, behave in a Covid-appropriate manner and continue to take precautions such as masking and social distancing.