HomeSpotlightEconomy is set for a faster recovery

Economy is set for a faster recovery

With most of the states readying themselves to face the possible third wave we could safely assume that the second wave is now under control. But that doesn’t mean that life could roll back to normalcy as there is the danger of third wave which could be more dangerous than earlier two waves, both in terms of spread and fatalities. In other words, life would be limping forward for next couple months at least – till the possibility and impact of third wave get clarified.

Despite the uncertain scenario prevailing in the short term, the current financial year seems to be far better than the previous one for various reasons. Yes, unlike last year, this year life has not come to a standstill and this is the greatest positive we have. Further, last year we were groping in the dark with no firm solution to pandemic in our hand. But this year, we have started vaccination with nearly 30% of the population already vaccinated (at least one dose).

Tax collections double

In short, despite Q1FY22 being adversely affected by the Second COVID wave, growth expectations look rather promising as against Q1FY20. India’s direct tax collections in the first two and a half months of 2021-22 stand at nearly Rs 1.86 lakh crore, double the collections over the same period of last year that was affected by the national lockdown.  “Despite extremely challenging initial months of the new fiscal, the advance tax collections for the first quarter of FY 2021-22 stand at Rs 28,780 crore against advance tax collections of Rs 11,714 crore for the corresponding period of the immediately preceding financial year, showing a growth of around 146 per cent,” said a statement from the Finance Ministry. Similarly, GST collections also show upward trend compared to the corresponding period in the previous year. All these statistics show that the economy is on growth path.

Mixed bag for construction sector

For the construction sector it is likely to be a season of mixed bag – though the performance till date during the current financial year is likely to be better than last year (due to low base) but still it will be below its full potential. Though the scale of reverse migration this year was much less as compared to last year, construction activities affected due to strict adherence to social distancing measures implemented by the local governments. Further, labour availability was down in some instances and there were sand availability issues in certain states. Sharp rise in cement, steel and labour costs also have to bear part of the blame for slowdown in construction activities.

Cement consumption growing

Cement consumption showed a strong growth during the fourth quarter of the last year but the trend could not be maintained in the next quarter, that is, the first quarter of this financial year as demand faltered from mid-April till May end. However, June witnessed healthy improvement with easing restrictions and rising vaccination. Interestingly, despite the demand suppression during the quarter, price remained at the elevated level which has helped the cement manufacturers to recover part of the cost spike. Expected increase in infrastructure spending by the election-bound North Indian states, reconstruction activities in the cyclone affected Eastern states and increased push given for affordable housing by Telangana and Andhra Pradesh states are likely to keep the demand for this dry building material at an elevated level in the coming months. Both the industry as well as analysts expect the industry to post robust growth in the coming months.

Demand recovery for other building materials

Other building materials manufacturers too are in a good shape and expect a robust growth in demand once the lockdown is lifted completely. For pipe manufacturers (especially PVC pipe manufacturers), raw material prices have started correcting which should help in attracting customers who were in wait and watch mode. Price has remained at stable level in wood panel industry while the MDF manufacturers operating almost at their optimum capacity. On the other hand, tile manufacturers are also helped by the strong export demand which has kept most of the manufacturers at Morbi busy. Similarly, in case of paints, strong demand momentum of Q4FY21 was visible for most parts of April but the Second Wave slowed momentum in the later parts of April and May. Demand momentum once again accelerated in June with the easing of restrictions.

Real estate in better shape

Real estate witnessed weakness in pre-sales on account of the Second Wave-led lock-downs across India from April. No new major projects were launched during the quarter. The lockdown led to a significant drop in physical site visits and enquiries in Q1FY22. However, unlike in the first lockdown, construction activities continued at the sites though at a lesser scale which may help the builders to complete most of their projects as per schedule. According to the latest Magicbricks PropIndex Q2 (April-May-June) 2021, signs of recovery for demand in residential real estate were visible in June with a pan-India price growth of 1.7% during the quarter. The report also says that unlike the first wave, the recovery in demand for residential real estate has been faster in the second wave. The residential markets of Bengaluru, Chennai, Thane, Noida-Greater Noida, Kolkata, and Delhi witnessed price corrections ranging from 1%-2.3% during the quarter.

Further, normal Monsoon prediction by the IMD should act as an icing on the cake. Better agricultural production should increase the farm income and consequently better rural demand. Also, the government is expected to take some big reform measures which may provide much needed kickstart for the economy. With vaccination drive in full swing the impact of possible third wave, if it happens, will be limited. So, there are hardly any reason for the growth momentum not to pick up the in the coming days.

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