What is your assessment of the second wave’s impact on the economy?
The way we are looking at things, it’s the first quarter where the brunt of the second wave would be felt. The impact will be less than the first wave first quarter.
The reason is that the economy has started understanding how to live with the virus. Not just India, but globally. We have observed that the extent to which the lockdown impacted economic activity is much lower.
Also, we have to understand that this time the restrictions were done in a more nuanced fashion. Certain kinds of industrial and construction activities were allowed, so we can see it in our data that those sections of the economy have not been impacted as much.
The open question is, how much or how fast do we get out of this mess? Is it going to be as fast as the first wave where pent-up demand really took us up very sharply? Or is it going to be slower?
We have taken a call that maybe the pace of recovery is going to be a tad slower than what we had observed during the first wave. That is not because of the damage to the income or jobs of households. It is more because of the sentiment factor.
RBI’s survey is showing that consumer confidence today is even weaker than what it was during the first wave. That makes us a bit cautious. That’s why we are saying that maybe the pace of recovery is going to be somewhat lower than what we had seen during the first wave.
There is a naysayers’ club that harps on high inflation and its impact on savings, low sentiment, supply disruptions and the hit on rural economy. What would you say to that?
Theoretically, all of those arguments are kosher. The key question is to understand to what extent these factors will be countered by the sentiment factor.
This is an extremely young and dynamic economy. A lot of people have to move out to earn a living. In that kind of an economy, the moment the widest curve comes down and the moment vaccination gathers pace, sentiment could turn quite quickly as well.
So, maybe for next couple of months things will just first come back to — let us say — about 90-95% of where we were before the second wave. To go above 100% of that, we would require confidence to come back. I think the vaccination process will be very critical in bringing back that confidence.
In our data, we are not finding that the labour market disruption — in jobs or income — has been as large as in the first wave. The litmus test of everything will be by the time we get into the festive season. If the economy has mended enough by then and the vaccination process has gathered pace, then we might see the demand situation somewhat normalise.
We have seen it globally in all countries that the moment vaccination gathers pace, consumer sentiment changes very substantially.