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Third wave: Growth to slow down in Q4, small companies to be hit

GDP in Q4 may now grow only at around 3-3.2%.

Despatches of two-wheelers in December were subdued suggesting limited purchasing power with middle-income households; the dull demand for tractors indicates rural incomes too may not be as robust as expected.
Despatches of two-wheelers in December were subdued suggesting limited purchasing power with middle-income households; the dull demand for tractors indicates rural incomes too may not be as robust as expected.

With the third wave of the pandemic likely to disrupt businesses and households, economists are paring their growth estimates for FY22. The anaemic growth in factory output in November may be partly the result of supply shortages and the recovery may regain momentum in March and April. But for the moment, some retracing of the demand for services, high inflation could slow demand and shave off two percentage points of growth in the March quarter. GDP in Q4 may now grow only at around 3-3.2%.

The big concern is that manufacturing margins of small firms which have been squeezed over the last couple of years could be further hit. The larger listed companies will continue to do well as they gain market share and pass on some increase in input costs. Despatches of two-wheelers in December were subdued suggesting limited purchasing power with middle-income households; the dull demand for tractors indicates rural incomes too may not be as robust as expected.

Indeed, demand could stay weak in the next few months as 6% retail inflation leaves prices high and the rising prices of crude oil adds to price pressures.

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