Home Spotlight Let down by lockdown

Let down by lockdown

So, lockdown has come into play in Maharashtra and also in some other states while the whole country is shivering under Covid-19. In addition, many countries have issued negative travel advisories to their citizens advising against travelling to India which also shows the intensity of the problem. Now we are living in a situation where each state has its own sets rules to enter/exit the state which is making life difficult and confused especially for logistic companies. The problem also seems to have exacerbated partially through some media headlines.

Lockdowns are disruptive

While the restrictions are much milder than the Great Lockdown of last year, they have the potential to disrupt economic normalization of some of the states and India.  For example, Hero MotoCorp has announced temporary shutdown of their facilities to combat the pandemic. The partial lockdown rules impose restrictions on the manufacturing sector, which adds to the risk of growth outlook. For example, one analyst estimates an impact of 20bp on India’s FY22 GDP growth, owing to the partial lockdown in Maharashtra. The damage will be more if the lockdown is prolonged further, that is, if it doesn’t end by May 1st as was originally announced.

Reverse migration is a cause of worry

Just like last year during lockdown, this time migrant workers have started heading towards their hometowns from Delhi, Maharashtra, Gujarat and other states as there is uncertainty about the normalcy returning. However, this time many have decided to stay back in the cities hoping for quick revival of the activities. Though the official numbers are not available, both government officials and experts agree that this time the number of people returning home is far less than last year. According to some people, most of them cannot afford to lose jobs after remaining out of work most part of lats year. Many in the unorganised sector feel that livelihood, in whatever form, is more important than their health.

Construction sector worst affected

However, construction and real estate development is the worst affected segment where the impact of lockdown and subsequent reverse migration is immediately felt as these sectors largely dependent on the unskilled migrant workers. Though large developers have been able to retain their workers by offering accommodation etc., small and marginal players with limited resources are most affected. According to one assessment the sector is affected by 10-15% because of the lockdown in Maharashtra.

Prolonged lockdown to affect decorative paints business

Decorative painting segment is another industry which is likely to be affected by the lockdown, if it is continued for prolonged duration and widespread.  Since the lockdown presently is limited to some regions and cities and also the Prime Minister has also called for restrained use of lockdown mechanism as a tool to combat the pandemic, the industry may not see last year’s lows in terms of demand. Also, this time hesitancy to repaint may not be the hygienic factors as much as non-availability of workers due to reverse migration.

Furniture making too will be impacted to an extent which in turn will affect demand for wood panels. Leading manufacturers of plywood, laminates and MDF have not changed their business plans for the year nor their demand projections.

But the experts say that second wave may peak much earlier than the first wave meaning likely disruptions from it may have limited impact on the economy and various sectors in it. Also, vaccination drive is in full swing and at least 7-10% of the population is likely to be covered by it by June-July. Further, from the recent speech of the Prime Minister it is clear that there wont be any nationwide lockdown this time.

Purchasing Manager Index data from countries that have already witnessed a second wave shows the contact-heavy services sector has seen a sharp slowdown whereas the manufacturing sector has been more or less resilient during resurgence. Moreover, the fall in services PMI is much smaller during the second wave than the first wave, indicating firms have deftly handled restrictions during the second wave and ensured business continuity. Thus, despite the severe second wave, the downside risks to the growth outlook, are limited this time unlike Wave 1 as the overall impact of second wave is likely to be primarily on timing of normalization rather than magnitude.

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