‘Low confidence plus high fuel, health costs to hurt demand’

ICRA says slackening in activity due to second wave overshadows base effect

The pandemic’s second wave will dent consumer sentiment even as high healthcare expenses and retail fuel prices will squeeze disposable incomes and consumers, rating agency ICRA warned in a note on Wednesday.

While the low base of April 2020, which saw very tepid economic activity, had propped up several economic indicators this April, ICRA said that there is a persistent slackening in activity due to the second wave that overshadows the base effect.

“The optimism generated by this trend of high growth rates in several high-frequency indicators for April is limited, as eight of the 13 non-financial indicators in April 2021 remained below their pre-Covid (April 2019) levels,” Aditi Nayar, the rating agency’s chief economist, said. Many indicators such as GST e-way bills, fuel consumption and vehicle registrations displayed a slowing sequential momentum in April 2021, reflecting the rise in COVID-19 cases, and imposition of restrictions in various parts of the country, ICRA noted, adding that this trend has continued so far in May, with restrictions spreading to more States.

“In our view, the sharply higher daily infections in the second wave of COVID-19 in India will have a prolonged negative impact on consumer sentiment.

In addition, the substantial healthcare expenses related to the COVID-19 treatment, along with high retail prices of fuels, are likely to squeeze disposable incomes in the urban as well as rural areas,” Ms. Nayar said. With pent-up demand satiated during the festive season in 2020, demand for many varieties of consumer durables may be low, ICRA reckoned. “Overall, we expect discretionary spending on consumer durables and areas such as home improvements may be limited in the near term, in addition to the expected cutback in spending on contact-intensive services,” Ms. Nayar said.

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