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Source: IBEF

“India’s biggest holiday season, starting with Diwali, the festival of lights on Saturday, seems to provide a much-needed boost to demand, with online retail sales to business activity indicators signalling the recovery of Asia’s third-largest economy.

According to estimates from consultancy RedSeer for the period Oct. 15-21, retailers such as Inc. and Walmart Inc.’s Flipkart saw a 55% rise in online revenue from a year earlier to $4.1 billion in the run-up to the festival.

During October, data collected by Bloomberg showed a rise in new vehicle registrations, while a separate gauge showed an increase in credit card purchases well ahead of the holidays.

This follows the increase of tax receipts and activities in manufacturing and services, which are the key drivers of job growth. The gains represent a steady turnaround in demand, which accounts for some 60% of an economy that in the April-June quarter shrank a record 24% and is heading for its worst annual contraction.

Mr. Pranjul Bhandari, chief Indian economist at HSBC Holdings Plc in Mumbai, wrote on Thursday, “”The economy shows strong signs of change.”” “”Monthly sales tax receipts have reached Rs. 1 trillion (US$ 13.43 billion) mark, output indicators have rebounded, and there has been something of an acceleration even in struggling capital-intensive industries.””

Although the hinterland of India showed signs of moving the consumption recovery with demand increasing for everything from tractors to personal care goods, data from the Automotive Dealers Association Federation showed that total vehicle registrations across the nation climbed from a month ago in October. They are still below last year, and dealers have been building inventories in expectation of higher demand.

After a shutdown disrupted operations, companies have been recovering in the past few months. With a “”Z-score”” study, the manufacturing sector was particularly eye-catching, showing India’s purchasing managers’ index growing at a rapid pace compared to its average. On Thursday, finance minister Mrs. Nirmala Sitharaman boosted sentiment by extending the overall stimulus to 15% of GDP, including initiatives aimed at attracting new investment.

The economic policy uncertainty index of Baker, Bloom and Davis for India has improved from peaks in May. The index is based on the frequent references in seven major Indian newspapers to political instability. The next economic pulse-check is expected on Nov. 27, when data on the gross domestic product for the quarter ended September is due.

According to the latest data from the central bank, credit card transactions in August increased 8% in the build up to the festival season as Indians pumped up to spend more. According to a survey by International Data Corp. stating the Indian smartphone market alone among the world’s top three, smartphones were among the strongest products, with a growing trend in sales in the third quarter.

Although, the middle and salaried classes have found their feet, the vast majority are still struggling. Many small and medium-sized companies, ranging from hawkers to factory work employees, have shut down and significant portions of the informal sector are without employment. Data from the Centre for Indian Economy Monitoring Pvt. showed an increase in the unemployment rate in October.

In the outcome of the pandemic-induced lockdown, millions were reduced to subsistence living, and the hazards remain. An increase in cases of viruses, subdued investment and a strained labour market may lead to a lower spiral in consumption.

“”A larger section of Indian households face stressed balance sheets, and the fiscal response of the government remains modest,”” said Ms. Tanvee Gupta Jain, an economist with UBS Securities India Pvt. in Mumbai, adding that after the festival season ends in mid-November, demand could taper off.”