GoI could unleash economic package in certain sectors

ANALYSIS
GoI could unleash economic package in certain sectors
A deserted view of Madurai city following a government imposed lockdown. The GoI is contemplating unleashing a solid financial stimulus to support sectors that have been affected by the pandemic’s second wave. Courtesy: ANI

Pandemic infection rates are dropping according to data shared. The stock markets are illustrating this relief, but the times ahead will call for closer analysis and assistance for areas that stand to be affected - specially manufacturing and real estate.

India is slowly and steadily clawing its way back from the devastation wrought by the second wave of the pandemic if the data is any indication. To further soothe the blow that has been dealt to certain sectors the government is seriously considering an economic stimulus package for the sectors worst affected by COVID-19, Bloomberg reported on Tuesday, citing people familiar with the matter.

The finance ministry is reportedly working on proposals to bolster the tourism, aviation and hospitality industries, along with small and medium-sized companies. The discussions were believed to be at an early stage and no timeline for an announcement was decided.

According to stats shared by the health ministry, the country posted 196,427 new coronavirus cases over the last 24 hours, its lowest daily rise in infections since 14 April, while deaths from COVID-19 rose by 3,511. The overall case load now stands at 26.95 million, while total fatalities are at 307,231.

Markets register positive sentiment

By all accounts this shows an improvement as and this was reflected in the stock market as Indian shares rose with sentiment aided by Asian markets that tracked a strong finish on Wall Street according to Reuters.

Earlier this month, the central bank announced several measures to help the country ramp up its healthcare infrastructure to deal with the second wave of Covid in what was seen as a first of targeted measures to address the current predicament that the country is facing.

The blue-chip NSE Nifty 50 index gained 0.43% to 15,261.55 by 0512 GMT, while the benchmark S&P BSE Sensex was 0.29% higher at 50,794.57.

Software services giants Infosys Ltd and Tata Consultancy Services were the top boosts to the Nifty 50, gaining 1.33% and 1.41%, respectively.

"Upbeat global cues and receding new COVID-19 cases trend have triggered a strong start and rotational buying across sectors is further fuelling the momentum," said Ajit Mishra, vice president of research at Religare Broking.

Investors' appetite has been aided by a steady decline in daily COVID-19 cases in India.

While the stock markets are registering signs of the gains made in the battle against the pandemic the road ahead is still fraught with challenges that will require aggressive decision making coupled with economic foresight. The government, under the stewardship of prime minister Narendra Modi, has not abandoned its earlier plans for growth and stability even though the current circumstances may warrant a closer introspection given the ground reality and the strengthening of infrastructure across the country to bolster the impact that could be felt in the upcoming months.

While the International Monetary Fund (IMF) expects India’s economy to expand 12.5% this year to March -- and will be revisiting the forecast in July -- the country’s central bank projects 10.5% growth.

An MSME manufacturing unit in operation. The pandemic has affected the supply chain operations in this sector in India and Vietnam and could force markets to look towards China once again.
An MSME manufacturing unit in operation. The pandemic has affected the supply chain operations in this sector in India and Vietnam and could force markets to look towards China once again.Courtesy: ANI

Supply chain disruptions must be avoided

An area of concern for the administration will be the manufacturing sector which needs to be addressed and supported. Economists have argued that if the pandemic continues to last in countries like India and Vietnam then it would force supply chain disruptions, and this would mean that China could register export growth continuing into next year.

The outlook for the Indian housing market is also worrying given the current circumstances prevailing in the country as opposed to the overall global trend which indicated that residential property markets in major economies would climb on huge monetary and fiscal support and amid a recovery from the pandemic which showed risks for prices skewed to the upside. Average home selling prices touched attractive heights in some countries so far this year. This movement will not reverse and will be driven by low mortgage rates, swift vaccine rollouts and the easing of restrictions after deep pandemic-induced recessions last year.

It is being predicted that residential real estate could be hit hard due to low demand, coupled with government tax rebates and incentives for property developers, whereas the global outlook for the sector appears to be promising.
It is being predicted that residential real estate could be hit hard due to low demand, coupled with government tax rebates and incentives for property developers, whereas the global outlook for the sector appears to be promising.Courtesy: Getty Images

Real estate sector could be under stress

Residential real estate in India could be adversely affected due to low demand coupled with government tax rebates and incentives for property developers. India is currently accounting for one in every three coronavirus-related deaths reported worldwide each day, according to a Reuters tally. Ashish Nainan, assistant professor at Saintgits stated that, "Normalcy in mobility and housing would remain muted over the next 18 months. But the larger issue of income and jobs also remains muted.

"While the first wave provided some relief to the sector, post the second wave, buyers would become fence-sitters for an extended period."

A Reuters polls of more than 100 property market experts taken 11-24 May showed big upgrades to house price forecasts for the United States, Britain, Canada, Australia and Dubai compared with just three months back, outpacing expected GDP growth and consumer price inflation.

In April, the finance ministry eased rules for capital expenditure by government departments to try to boost spending in the economy. Pressure also is building on the central bank -- which serves as the banking sector regulator -- to ease loan repayment rules, especially for sectors badly hit by this virus wave.

Earlier this month, the RBI announced several measures to help the country ramp up its healthcare infrastructure to deal with the second wave of Covid in what was seen as a first of targeted measures to address the current predicament that the country is facing. Steps to prop up the MSME sector and financial services sectors of the Indian economy were announced. The MSME sector sustains approximately 20 per cent of total employment, 29 per cent of GDP, 45 per cent of total manufacturing output and 40 per cent of the total exports from the country. Targeted measures, therefore, are the preferred way forward.

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