Express News Service
NEW DELHI: The second Covid wave could push businesses into further distress with a ‘demand shock’ as people — and companies — are holding on to their purses due to falling incomes, job losses, and an overall weak consumer sentiment, according to the Reserve Bank of India. “High frequency indicators suggest that the biggest toll of the second wave is in terms of a demand shock – loss of mobility, discretionary spending and employment, besides inventory accumulation, while the aggregate supply is less impacted,” RBI said in its monthly bulletin for May, released on Monday.
Painting even a bleaker picture for the economy, RBI said its recent projections were “extremely tentative” given the disproportionate base effects. It added that it might have to revise its GDP growth forecast of 26.2% for the first quarter “made before the full fury of the resurgence”. Preliminary data on petrol and diesel sales point to a decline in fuel demand in April, due to mobility restrictions. Diesel sales contracted 1.7% on a month-on-month basis, while petrol sales slipped 6.3% in April. Electricity generation stagnated sequentially but rose 8% compared with April 2020.
Pointing to such growth figures, when compared annually, RBI said the impact of the second Covid wave on industrial activity may be less severe than the first. It may, however, be noted that industrial production surged out of a two-month contraction on the back of a favourable base effect.E-way bills — an indicator of domestic trade — recorded a 17.5% month-on-month contraction in April. “This could be pointing to a moderation in GST collections in the coming months,” RBI observed. Similarly, most of the original equipment manufacturers of passenger vehicles reported a monthly fall in April, reflecting subdued demand.If infections don’t ebb and demand weakens further, it could worsen price instability, the central bank warned.
U-shaped impactEach tip of the ‘U’ represents sectors that are weathering the storm – agri at one end and IT on the other On the slopes are automated manufacturing and services that can be delivered remotely In the well of the ‘U’ are the most vulnerable groups that have to risk exposure such as doctors, healthcare workers, law and order personnel, civic staff, small businesses, etc