NEW DELHI: As we bid goodbye to the year of marked economic slowdown, corporate honchos are now pinning hope on the upcoming Budget to revive the country’s moribund economy and their own fortunes in 2020. Optimists say “early signs of revival are visible” indicating the slowdown could bottom out soon and a rebound is likely in the next couple of quarters, while others say 2020 will be more a year of stabilisation than of a complete turnaround.
The heightened uncertainty over the direction of the economy has placed corporates across sectors in a fix, with many delaying their annual year-ahead outlook meetings.“The slowdown in consumption is clearly visible … given the current growth rate, the government should provide more stimulus to revive the economy and increase the GDP growth even if it is at the cost of increasing fiscal deficit,” said Adi Godrej, chairman, Godrej Group.
From automobiles to consumer goods sector, virtually every sector has been reeling under the impact of a slowdown with India’s economic growth crashing to a six-year low of 4.5 per cent in July-September period, steadily falling from the much-derided 5 per cent growth in the previous quarter and 7.1 per cent during July-September a year ago.
Another set of data suggests the manufacturing sector, which accounts for about 75 per cent of the country’s factory output, contracted one per cent in July-September as consumers put off purchases or moved to cheaper alternatives. Industrialists feel the only way out is through higher spending by the government in the 21st-century version of US President F D Roosevelt’s New Deal of the 1930s. “Spending is the only way out to reverse the slowdown,” said Vikram Kirloskar, President, CII. “Firms would really invest only once demand picks up so at this point of time, the government should spend on infrastructure projects, in rural schemes so that demand is created,” he told TNIE.
Companies which have been recently benefited from a corporate tax cut say the money saved has already been mostly used to repay debt, deleverage their balance sheets, with little left for fresh investments. Also, fresh loans to fund new factories or expand existing ones at this moment “do not make sense as existing factories are running far below their capacities. The flow of credit to commercial enterprises was negative to the tune of Rs 1.28 lakh crore during the first 6 months of FY20 as against Rs 1.85 lakh crore a year ago, the latest monetary policy review showed.
Analysts at global rating agency Moody’s have pointed out that, “a host of cyclical factors including rural financial stress, weak corporate sentiment, slow flow of credit in the financial sector and sluggish job creation” were reasons for the slowdown. However, given the right environment, India Inc., hopes to reverse its fortunes and feels the end of 2020 may ring in fresh hope. B Sumant, executive director (FMCG) at ITC said, “the current slowdown is a short-term hiccup that should disappear by the second quarter next year” helped by government interventions and better winter crop yields.
Weak rural demand coupled with inflationary pressures dented FMCG volumes that fell 4 per cent in the September quarter. Similarly, the auto sector, the first to flash danger signs, expects a revival in demand for passenger vehicles (PVs) and tractors in next fiscal on the back of good rainfall and record reservoir levels. “In PVs, we see revival post-April when the new emission norms come into place, while better days for tractor sales will come after March because overall rains have been strong, reservoir levels in India are at a record high,” said Anand Mahindra, chairman, Mahindra Group.
Passenger sales dropped 23.7 per cent during July-September. Analysts point out that there are other green shoots too. Annual sales have exceeded the annual launches for the first time since 2016, indicating further stability in the residential construction market, says Ramesh Nair, CEO & Country Head – India, JLL. 2019 saw a substantial decrease of unit launches to 136,998 when compared to 159,452 units launched in 2018.
Slowdown led by weak consumer demand has been manifesting itself in the form of sluggish sales with buyers postponing their purchase decisions. “The residential market has seen a gradual shift in consumer behaviour. Recent reforms and developers’ focus on the delivery of projects will lead to more supply in 2020 and the revival of buyers’ sentiments. We believe sales will continue to rise in the future and are likely to increase beyond the pre-demonetisation year of 2016. Revival signs will be more visible through affordable housing demand which will drive long term institutional funds to invest in this segment,” Nair noted.
Nevertheless, India Inc., believes the next 2-3 months will be a crucial and good expansionary budget which helps revive demand will be what India’s corporate barons would be looking out for. A mix of policy decisions and demand dynamics could decide whether India will be able to withstand the economic storm or face a prolonged slowdown.
(With inputs from Anuradha Shukla)