LITTLE DEMAND SLOWS GROWTH BY ARVIND PINTO!

DEPRESSION: Lockdowns and curfews in various states have led to a sharp drop in the purchasing power of citizens. This is undoubtedly dragging down industrial production. The worst affected are the automobile and fast moving consumer goods sectors of toothpaste, soaps, cosmetics and the like.

By Arvind Pinto

A sharp fall in demand due to unemployment caused by the Covid-19 pandemic and lockdowns has led to a fall in demand and production, and this is delaying the revival of economic growth…

AS the economy of the country is slowly recovering after the devastating slow down caused by Covid-19 pandemic and mandated lockdowns imposed, there are several factors that inhibit the immediate rebounding of the economy as government and economic planners would like to see.
For starters, let us look at some figures. For the year 2020-21, the gross domestic product contracted by 7.3%. While in 2019-20, the Indian GDP was Rs145.70 trillion, the GDP for the year ending March, 2021 was Rs135.10 trillion. What does the contraction of the economy mean for the country?
The contraction of the economy has further led to a contraction in the job market, with a consequent rise in unemployment. This also leads to a lack of demand for goods and services. During depression times the income of people will reduce, several families have to dip into their savings to finance their essential consumption needs.
The impact of the slow down of the economy is not so visible in our urban centers. These are burgeoning with the rich and middle classes. The viral pandemic after effects are more visible in the rural countryside, where several who were working in the cities have not gone back to their old work places. There are no jobs and little savings running out. Unless the economy revives in a significant manner, the poorer section of working classes who are marginalized will be the worst affected.

DEPRESSING DEMAND

ON the demand side there is still a certain amount of fear in the minds of the general population and this restricts them from buying unnecessary things or just out of extravagance or the fun of it. It does not take too much to see this pattern. Our hotels, resorts and shops in Goa are still to see substantial footfalls. Despite relaxation of the working hours, the normal tempo of business is still to pick up
According to the market, consumer demand is yet to come back to normal. While Covid-19 has increased consumer demand for medication and sanitization products, sectors that are considered luxury are no longer a buying priority for even the middle classes. Entertainment is still shut and the only entertainment that most people enjoy is television and entertainment available on mobile phones and their various apps. It will take quite a while before the big full blown entertainment sector returns to normal.
I happened to be in Goa last week on a business trip and witnessed the effects of the downturn in tourism. Most high-end resorts were working at barely subsistence level. With barely a trickle in tourists, several of the services dependent upon tourism footfall, such as transportation, entertainment and retail selling, have taken a big hit.
Many of the seaside villages catering to a rush of low budget tourism are now dormant. Most of the shopping arcades leading down to the sea front beaches were still shuttered and talking to some of the owners, they informed in me that they do not see much business in the coming season.
With the charters still not in operation, there will be no foreigners visiting and basking in the sunshine of the beaches or small resorts. For that matter, where are the domestic tourists? They too are missing in the usual inflated numbers.
With the slack demand and lack lustre buying interest, supply of goods and services too tend to accumulate. This should ideally see a drop in prices. Unfortunately, prices have not fallen significantly. A look at realty prices would show that there has been no significant drop in the prices of real estate. There has been a slowdown of the tempo of building construction, since real estate developers are still attempting to gauge the market.
Interestingly, prices for new apartments have not reduced, there is still a stock of flats and apartments with builders awaiting sales. Talking with some of the builders, I was informed that they receive enquiries from Delhi, Gujarat and West Bengal and they are hoping with the resumption of flights to Goa, sales of apartments too would pick up.

FACING CHALLENGES

WHAT are the current challenges that face the economy? The lockdown shut down several manufacturing units, especially the heavy industries of steel and automobile manufacturing. Now that these industries are slowing limping back to life, another shortage has hit especially the automobile industry.
Most modern automobiles use semiconductor chips for many of the operations in a car. The shortage of semiconductor chips is now a damper on the production of new cars. Those who have booked cars that were available for the asking, now have to wait for months to take delivery. Trust that we will not have to go back to the days when we had to book and pay the entire amount in advance, while it would take several months for delivery to happen.
Remember the time when the Maruti first came into the market! For many who believe that it is China that is the reason for the shortage of semiconductor chips, would be surprised to learn that China imports 90% of the chips for its automobile industry. The shortage of semiconductor chips has not only affected the automobile sector, but more importantly the computer sector. A shortage of these chips has also led to slow supply of laptops and computer accessories which rely on semiconductor chips to operate. This has also resulted in a steady rise in prices. Similarly, the mobile phone market has been affected as also many electronic gadgets that depend on semiconductor chips to work.

RISING INFLATION

While the government is making attempts to push start the economy, with infusion of cheap money into the system, there are few takers for the liquidity that is presently available. For unless there is substantial demand that is created, entrepreneurs are unwilling to risk expansion of their existing projects.
Further the rise in inflation now at 6% is becoming a burden for the common man. Food prices have risen in the past few months. Thanks to the good monsoon, a normal summer crop, food prices will not rise significantly. However, the rate of inflation will lead to an erosion of family earnings with a consequent reduction in saving and curtailment of lifestyle living.
So it is true, we are living in hard times. While it would be easy to say that the worst is over and better times will come, the signs of economic revival indicate that perhaps the worst is behind us and the prosperity will be here sooner than later.

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