Bounce-back slows on Covid fears, damp consumer sentiment
The looming fear of a third wave of new, resistant strains of Covid and continuing sagging consumer sentiment have ganged up to puncture the economy’s bounce-back. The indicators are there. Two-wheeler and home sales, bellwethers of consumer sentiment, are stagnant. Closed colleges and lockdown restrictions have ensured that the inventory/ stockpile of popular brands from Hero MotoCorp, Bajaj Auto and other big two-wheeler manufacturers has risen from an average 40-45 days to over 75 days. Though the first four months of the current fiscal show offtake of two-wheelers has recovered to prepandemic levels, the slow growth is worrisome. In Mumbai, August registrations of home sales fell 32% to 6,635 deals compared to the previous month of July, after lower stamp duty sops were withdrawn.
The elephant in the room is poor consumer sentiment. Though registering some improvement, it is continuing to sag. CMIE’s index of consumer sentiment for July 2021 was 45% lower than in March 2020. Increased demand and consumer buying is what makes an economic rebound. However, CMIE points out that average household incomes have fallen 14.9% during 2020-21; and if you make adjustments for 6% inflation, the real fall may be as high as 20%.
No wonder people are holding on to their money and only buying what they think are necessities. Again, CMIE says those who lost jobs have moved to lower-paying ones. So while employment came back, income did not. This has made people skeptical of any near-term turnaround. Meanwhile, manufacturers, by repeatedly hiking prices, have dampened consumer demand further. Prices of motorbikes and scooters for instance have risen 25% in the last two years. Maruti Suzuki, the largest of passenger car manufacturers, has announced a price hike from September across all its models—its fourth this year! The same is the story in the construction industry—all input costs are moving north. Manufacturers in turn are blaming the government for higher taxes on input commodities. If industry and government don’t work together to make life less expensive for the common man, it is unlikely there will be any bounce back.