By Deepak Sharma

New Delhi: Most Indian business are pinning their hopes on the forthcoming festive season to overcome the challenges posed by the muted demand in the aftermath of the spread of COVID-19, which forced the consumers to cut down spending and the government to implement lock down to arrest the pandemic spread.

Hammered by the fall in demand triggered by the government implemented curbs on movement of people, India’s real Gross Domestic Product (GDP) contracted by 23.9 per cent year-on-year in the April-June 2020 quarter.

The impact on Indian economy was so severe that it forced global rating agencies such as Moody’s to revise the India’s real GDP downwards to a negative growth of 11.5 per cent in fiscal 2020-21, much weaker than its previous estimate of a 4.0 per cent contraction. 

Despite prevailing weakness in Indian economy, many are optimistic about the recovery in Indian economic growth following the easing of restrictions in the second quarter, a bountiful monsoon that boosts planting of summer crops and expected recovery in consumer demand in the forthcoming festival season.

India’s festive season, which stretches over a few months from mid-September to the mid-January of the year, has always been a major source of revenue for all kinds of businesses in the country.

Most companies generate more than half of their annual revenue during this lucrative period and make up for any losses incurred during other quarters of the year.

“I don’t think we will see a V-shaped recovery. However, the good sign is that contraction in the Index of Industrial Production (IIP) is slowing from the decline of 57.6 per cent seen in April, which was the full month of the lockdown,” said Madan Sabnavis, chief economist, CARE Ratings.

“As we approach the Dussehra–Diwali period, some demand should manifest itself, both in rural and urban areas, in the durable categories. This should augur well for these companies,” Sabnavis said.

For sectors such as auto and consumer durables, these three months, peaking with Diwali, can account for 25 per cent to 35 per cent of annual sales.

Over a third of durables sales happen in the festive season, with companies gearing up for the season from August-September, pushing their products into trade and lining up their festive campaigns.

During the same period small appliances are also bought in large numbers during the festival season such as gift items, experts said, making it an important period for them.

Sector analysts said that most players are running full steam in terms of capacity, with most struggling to catch up with demand.

As per information available passenger car companies in India are betting on festival season sales as close to 12 models of cars and sport utility vehicles (SUVs), including facelifts, are likely to hit the road this festive season.

Thanks to a bountiful monsoon and widespread rains, sowing of Kharif or summer crops in the country touched an all-time high area of 108.22 million hectares during the week ended August 28, raising hopes of a record harvest in excess of 149 million tonnes during the season.

Agriculture input industries such as fertilizers, seeds and pesticides are also expected to grow two per cent to three per cent in the current financial year. Farm equipment industries will also likely see five per cent to 7 per cent higher profits due to labour shortage and higher mechanization.

Overall a growth in farm sector would provide some cushion to the Indian economy while a surge in consumer demand supported by higher spending by the government could boost economic growth in the next two quarters.

NOTE: Political.Capital is available on Telegram. Please click here to subscribe