Green shoots of growth visible in India as unlock process gains momentum

Green shoots of growth visible in India as unlock process gains momentum
Workers inside a factory as a state government initiated lockdown is lifted. Rising vaccination levels lift the confidence of consumers, pent-up demand is shoring up demand and sales in a host of sectors and industries.Courtesy: ANI

Three bellwether sectors, fuel, FMCG and automobiles have posted impressive growth in June over the previous month, albeit from a low base. This is mirroring the trend seen in the months following the lifting of Lockdown 1.0. Industry is optimistic that this uptick will sustain even after the pent-up demand has been met.

The first green shoots of growth are becoming visible in India. As various states lift full, partial or local-level lockdowns, the hum of machines is steadily replacing the silence that had enveloped India’s factories. And as rising vaccination levels lift the confidence of consumers, pent-up demand is shoring up demand and sales in a host of sectors and industries.

That said, a caveat will be in order. The recovery is relative to the small base of the previous months; a full blown return to a robust growth path is still some months away.

Since the beginning of June, fuel sales, widely seen as a proxy for economic activity, fast moving consumer goods (FMCG), considered a good gauge of the mood of consumers, and the automobile sector, where an uptrend indicates rising consumer confidence, have all shown an upward trajectory – which bodes well for the wider economy.

June oil demand rises sharply over May figures

According to data released by India’s state-owned oil companies, which operate 90 per cent of India’s fuel outlets, petrol and diesel sales in the first half of June trended upward by 13 per cent and 12 per cent, respectively, signalling rising economic activity and goods movement.

In line with the caveat above, it will be fair to add the absolute sales figures are still below those achieved in the same period last year. Petrol sales were down 3.5 per cent and diesel sales fell 7.5 per cent.

Data released by India’s state-owned oil companies, which operate 90 per cent of India’s fuel outlets, reveal petrol and diesel sales in the first half of June trended upward by 13 per cent and 12 per cent, respectively, signalling rising economic activity and goods movement.

This is giving rise to optimism that the trend seen in March this year – when fuel sales outstripped levels seen in March 2021, i.e., before the first wave of Covid forced the government to announce the world’s most stringent lockdown – could replicate itself once the lockdowns imposed in different parts of India are completely lifted as Covid cases fall further and life returns to normal.

Sales of FMCG products at grocery stores across the country have picked up 15-20 per cent in the second week of June, compared to May this year. This figure rises further to 25-30 per cent at supermarkets and standalone modern retail outlets.
Sales of FMCG products at grocery stores across the country have picked up 15-20 per cent in the second week of June, compared to May this year. This figure rises further to 25-30 per cent at supermarkets and standalone modern retail outlets.Courtesy: Reuters

Uptrend in FMCG sales could point to a return of confidence

The pick-up in fuel demand is being echoed in another major bellwether sector, FMCG. Sales of FMCG products at grocery stories across the country have picked up 15-20 per cent in the second week of June, compared to May this year. This figure rises further to 25-30 per cent at supermarkets and standalone modern retail outlets.

Incidentally, neighbourhood grocery stores, called kirana stores in India, still contribute about 90 per cent of all grocery sales in India, despite the steroid-charged growth rates posted in recent years by their much bigger online rivals.

As a result, store owners and managers have increased their stocking levels to 65 per cent of pre-pandemic levels compared to 30 per cent last month.

“We are seeing higher consumer offtake and primary sales in the past week across both general and modern retail — this is a direct consequence of retail stores being allowed to operate for longer hours,” Mayank Shah, Senior Category Head at Parle Products, told ET, a leading Indian financial daily. “Replenishment of stocks has more than doubled from what it was the same time last month, though it hasn’t reached 100 per cent.”

Analysts attributed the rising graph of the FMCG sector to the news about universal free vaccinations for India’s entire adult population and fewer disruptions in the supply chain following the progressive lifting of curbs by the states and local bodies.

Universal adult vaccination, fewer supply disruptions driving trend

Apart from consumer demand, analysts attributed the rising graph of the FMCG sector to the news about universal free vaccinations for India’s entire adult population and fewer disruptions in the supply chain following the progressive lifting of curbs by the states and local bodies. Media reports suggest that the time taken to replenish stocks has reduced sharply over the last one or two weeks.

Cars are seen parked at Maruti Suzuki's plant at Manesar, in the northern state of Haryana, India. An upward trend in the automobile sector, which indicates rising consumer confidence bodes well for the wider economy.
Cars are seen parked at Maruti Suzuki's plant at Manesar, in the northern state of Haryana, India. An upward trend in the automobile sector, which indicates rising consumer confidence bodes well for the wider economy.Courtesy: Reuters

80 per cent of auto showrooms reopen across India

A third major engine of the Indian economy, the automobile sector, which accounts for 40 per cent of the country’s manufacturing GDP, is also purring back to life. As of this week, 20,000 out of a total of about 25,000 auto showrooms, or 80 per cent of all such retail outlets, had reopened for business.

Most companies said bookings, sales and actual deliveries were rising at a fast clip even as the number of order cancellations were falling.

As of this week, 20,000 out of a total of about 25,000 auto showrooms, or 80 per cent of all such retail outlets, had reopened for business. Most companies said bookings, sales and deliveries were rising at a fast clip even as the number of order cancellations were falling.

Sales this month to touch 90 per cent of monthly average

Industry executives expect Indian passenger vehicle makers to post sales of about 300,000 cars and SUVs in June, just short of the average monthly sales of 330,000 units.

Most of this demand is, however, attributed to pent-up demand. Executives from several automobile companies said they were mainly servicing orders that had been booked prior to the lockdown but that the flow of fresh customers was still below expectations.

These green shoots of recovery and growth augur well for the economy as all three sectors have huge forward and backward linkages with hundreds of other sectors, all of which are feeding off the primary demand being generated by the fuels, FMCG and automobile sectors.

Now, industry executives, policy makers and investors are keeping their fingers crossed that this rising demand curve sustains its growth trajectory after the pent-up demand is satisfied.

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