High hopes for non-farm sectors recovery in H2 FY21; large firms to gain at the cost of smaller ones

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Updated: Dec 31, 2020 1:38 PM

The revival in economic activity in H2 FY21 may take the form of a multi-speed recovery across the non-agricultural sectors.

economic recovery, formal sector, large companies, small companies, recovery in sectorsVarious sectors are likely to see the formal portion gaining traction over the informal segment, and larger entities benefitting at the cost of the smaller players.

India’s non-agricultural sectors are likely to recover in the second half of the current fiscal year 2020-21; however, the possibility of travel restrictions due to a rise in coronavirus infections is still a major threat. The revival in economic activity in H2 FY21 may take the form of a multi-speed recovery across the non-agricultural sectors, according to a report by ratings agency ICRA. Various sectors are likely to see the formal portion gaining traction over the informal segment, and larger entities benefitting at the cost of the smaller players, the report added. Within the auto sector, tractors have shown a robust performance, and sales of motorcycles have outperformed that of scooters, highlighting the relative resilience of the rural demand, it further said. 

While many indicators related to fuel consumption and freight have posted a moderate on-year contraction on a year-to-date basis till November 2020, the revival in consumption of goods as compared to services was faster. The electricity and mining sectors have performed relatively better than many of the other non-agricultural sectors. However, within infrastructure, execution and awards are taking place at a varying pace in different sectors, the rating agency underlined. While the performance of power transmission capacity addition, and awards and execution in the roads sector has been robust so far in FY2021, power generation capacity addition has lost steam.

It is expected that the capacity utilisation may remain below the pre-Covid levels in this fiscal and therefore, the improvement in business sentiment and the confidence to undertake capacity expansion may be uneven over the next several quarters. The contact-intensive parts of the services sector, and discretionary consumption, are also likely to continue to lag the rest of the economy until there is a widespread rollout of the Covid-19 vaccines. 

These areas may still suffer

The performance of the hotels and aviation sectors were largely hit amid the lockdown. Further, hotel occupancies are expected to shrink up to 30 per cent in FY2021 due to the lockdown, continuing travel restrictions, and safety concerns. Overall, the recovery in the contact-intensive sectors is also expected to continue to lag the rest of the economy, even in the fiscal’s second half. Exports may witness intermittent hiccups, if rising infections lead to the temporary reintroduction of restrictions at different places across the country. 

Meanwhile, the agriculture sector single-handedly kept India’s economic wheel turning amid the pandemic. Even now, with the rise in rabi acreage remaining robust, the performance of agriculture is likely to be steady in H2 FY2021, bolstering rural-farm consumption in the remainder of this fiscal. 

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