NEW DELHI: Early results have shown India Inc revenues rising by 8.1 per cent in the December quarter, a first after three successive quarters of degrowth. However, rising commodity inflation and weak capital
expenditure remain a worry for businesses as they strive to recapture their lost mojo.
Listed companies have showed a revenue contraction of 5 per cent in the quarter ended March last year even (though the lockdown started on March 24), by a massive 27.6 per cent in the June quarter and by a more moderate 6.2 per cent in the September quarter, according to CMIE data,
“The results of the first flush of companies which have come out with quarterly results, are also the first sure signs that the economy is on the mend though much of the sales are accounted for by the festive season and by a pent up demand releasing at the end of a prolonged lockdown,” said Sanjay Bhattacharyya, former SBI managing director.
Bhattacharyya, who is on the board of a number of leading companies’, added that the trend will likely be carried into the quarter ending March 2021 as more “sectors which were in lockdown doldrums,” such as aviation, food and travel, start opening up and the vaccination drive infuses confidence among people and make up for sectors where pent up demand starts petering out.
However, the worry is for the financial year ahead. Spending on capital expenditure for India’s listed companies was as low as Rs 85,000 crore, down from the Rs 1.05 lakh crore spent in the September quarter and far lower than the Rs 3.79 lakh crore spent in the quarter ended March 31, 2020. “Without capex spending one cannot expect any real growth in corporate revenues in the coming year,” pointed out Prof Biswajit Dhar of JNU. “All that you will see is return to normal capacity utilisation.”
Meanwhile, inflation remains a bigger worry. “Already corporate expenditure is going up, despite
cutting costs on wages and office space. Commodity inflation cycle is going up. Our big worry is that raw material costs will go up . the RBI like most central banks have released more money into the economy to fight the pandemic, this is fuelling an inflationary push along with commodity prices rising,” pointed out Bhattacharyya.
India’s money in circulation went up from Rs 24.47 lakh crore in end-March 2020 to Rs 27.70 lakh crore as on Jan 1, 2021, according to RBI data. Corporate honchos and economists worry rising prices could hit demand and trouble India Inc.’s return to a growth story. According to Shilan Shah, senior India economist at Capital Economics: “The severe downturn — exacerbated by the government’s disappointingly slow and weak fiscal support- will leave lasting wounds in the form of firm closures and higher unemployment.”
The unemployment rate at 8.5 per cent is still considered high and this could impair demand. A banking sector which is expected to see near doubling of its bad loans will also remain a drag. “A strong recovery in growth is (still) likely this year and next, but we think that GDP in 2022 will still be 6 per cent below its level had the virus not existed,” Shah noted.