With winters near, will India’s economy freeze? Twin trends to understand country’s road to recovery
Updated: Oct 27, 2020 12:31 PM
As India’s foreign policy balances geopolitical tensions with the Government’s alacrity to tackle Covid-19, we must also dwell on how can we bring back the charm of the “golden sparrow”.
The covid-19 pandemic has only accelerated the pace of de-globalization and protectionist policies across the globe, and India is no different.
India is looking for a Happy New Year .Yes, Prime Minister. Whether it is mental happiness or some semblance of the ability to get back to our fast-paced lives Indians are looking forward to a sense of certainty and good news by New Year’s eve. However, global estimates suggest otherwise – with the global economy entering into a recession which is projected to mirror the intensity of the Great Depression of the 1930s we might be looking for roller-coaster ride ahead.
While we should look at our economy on a going concern basis, it is crucial to realize how this uncertain age is accelerating India’s digital transition – which is further fuelled by consumption patterns of digital natives and colonization by app-based services. With these changing consumer realities, I envision two trends for India.
Economic headwinds will make us want to learn lessons of resilience from our culture to become the golden sparrow India once was:
With nearly 5.9 million white-collar workers losing their jobs between May-August 2020 (as per CMIE data) and the shrinking of the labour force by 2.3 Million in September 2020 as compared to August 2020 gives us a glimpse of the troubling state of jobs in India. Furthermore, with ICRA estimating a contraction of 11% to India’s GDP in FY21, bank credit growth struggling at 5.2% in Y-o-Y terms (a three year low) highlighting the risk aversion among lenders and the increasing external debt to GDP ratio at 21.8% in Q1FY21 highlight the headwinds the once famed “golden sparrow” is currently facing.
As India’s foreign policy balances geopolitical tensions with the Government’s alacrity to tackle Covid-19, we must also dwell on how can we bring back the charm of the “golden sparrow”. While some might feel the inflow of foreign capital in India’s digital dream (start-up ecosystem) might help in that process, I feel that this can be augmented with India focusing on its culture and traditions.
From the world choosing “Namaste” as a favourable form of greeting amidst a pandemic to infusing “Haldi” to fortify consumer products (Amul launched a Haldi ice-cream in August 2020) to practising yoga to fight lockdown induced anxiety and stress – all highlight how global strategies recommended to protect ourselves from getting covid-19 are rooted in our culture.
De-globalization, changing consumer tastes & giving hot soup to Indian economy
The covid-19 pandemic has only accelerated the pace of de-globalization and protectionist policies across the globe, and India is no different. With Atmanirbhar Bharat, the Indian Government has subtly provided a platform for India Inc. to develop a self-sustaining ecosystem while restricting entry through its borders in order to curtail the spread of the covid-19 virus.
This policy stance of the Government, combined with mandated nationwide and localised lockdowns with differing rules have ushered consumers to re-evaluate their consumption choices and priorities. As India becomes digitally democratized (more people are digitally connected) and its citizens are united by the fear for covid-19, their conditioning to lesser social interaction over the last 6 months is going to make them more reliant on digital technologies to learn to new things, entertain themselves, purchase essential items for daily use and to work from home.
These habits are likely to continue at higher rates in the post-lockdown periods due to the potential of secondary outbreaks or due to the implementation of strict restrictions to avoid another lockdown (as currently being imposed in parts of Europe and UK). These behavioural changes are likely to assist in the surge of online window shopping (to fulfil the desires of cautious consumption), promoting local artisans while nurturing hyper-local communities and commerce. This shift towards hyperlocal services in India is in sync with the fact that it is expected to be a ~ US $ 38.9 billion opportunities by 2022.
The ability of brands to be able to service these conscious tastes of the same Indian customer (offer in-house experiences, provide brand transparency using blockchain technology and offer purpose-driven product lines rather than indulging in green-washing) will be like a hot soup that will help in ensuring economic activity thrives at the same level as in the pre-covid times.
With these in sight, I believe that as the temperature falls we must not only prepare for winter rains but also for snow. Quite unheard of for most of India, right? But, is that not what most of 2020 has taught us. You should be prepared to fight a pandemic – not just physically but also mentally. With the twin trends highlighted, I feel India will be better placed among other emerging market economies to learn from them and act accordingly. Ergo, it is a balance that India will need to achieve by adapting to these twin trends that will help us to understand if India’s economy will freeze over the next three quarters (making India susceptible to a longer than normal winter) or will India keep it warm by offering it hot soup.
Shahan Sud is an Investment Banking Analyst at Anand Rathi Advisors. Views expressed are the author’s personal.