5 ways how a dull festive season may worsen India’s economic plight

A weak festive season could significantly impact India's economic recovery this year as the pandemic rages on. In this article, we look at five ways how the country's growth will be impaired if the important festive quarter sees lower demand.

India’s festive season, which stretches over a few months from mid-September to the end of the year, has always been a major source of revenue for all kinds of businesses in the country.

Most companies generate more than half of their annual revenue during this lucrative period and make up for any losses incurred during other quarters of the year. Even in 2019 when business sentiments were hit by growing economic stress, the festive season proved to be a saving grace.

However, the situation this year is drastically different due to the Covid-induced economic crisisstill at the peak of the coronavirus crisis. The business sentiment has never been so low in India. To make matters worse, the country is contrary to what was predicted in the initial days of the virus outbreak.

With no vaccine in sight at least till early 2021, this year could be India’s worst festive season since the early 2000s. In such a scenario, an uncountable number of businesses — both formal and informal — are anticipating much lower growth during the crucial festive season. This may have serious impact on India’s annual economic growth.

Here are five ways the Indian economy may be hit if the festive season remains subdued:

SLOWER DEMAND REVIVAL

At the moment, demand revival is the biggest challenge for millions of businesses who have suffered severely after the country observed a strict nationwide lockdown due to coronavirus.

Demand recovery is of critical importance for the country’s GDP growth, which fell to a historic low of -23.9 per cent in June.

While restrictions have eased significantly five months after the lockdown was first imposed, the rising demand void leading up to the festive quarter is worrying. The festive season in India traditionally witnesses high volumes of sales, especially in the non-essential goods commodity, due to higher demand during the period.

But the coronavirus crisis, which has weakened income levels among vast counters of the country’s population, has crippled demand for non-essential goods — a major source of revenue/ growth for companies during the festive season.

Even though the situation has slightly improved in comparison to the initial months of total lockdown, the festive season is unlikely to act as a growth multiplier this year, according to experts.

The lack of demand will not only weaken balance sheets of companies but will also delay the process of overall demand revival.

MORE PAIN FOR INFORMAL ECONOMY

The festive season in India is considered one of the best times of the year for a large portion of individuals engaged in informal or unorganised sector employment. Business usually booms for small traders, restaurants and sellers during the festive season due to large footfalls.

For instance, the firecracker industry’s employs scores of additional employees during the festive season to make up for higher demand during Diwali and Durga Puja. But this year, the industry is already worried about lack of demand.

The coronavirus situation coupled with weak private consumption is not good news for a large portion of the informal economy ahead of the crucial festive season.

India’s informal sector, comprising millions of self-employed individuals — hawkers, small apparel stores, restaurant owners and traders — have already started facing the heat of demand crisis after resuming business post the lockdown.

An ILO study suggests that more than 40 crore informal workers may get pushed into deeper poverty due to the Covid-19 pandemic.

Therefore, a weak festive season could be a crushing blow to millions of unorganised sector enterprises that wait all through the year for income push during the lucrative festive quarter.

This, in turn, could be a major jolt to the Indian economy as the unorganised sector contributes about half of its GDP.

SECTORAL CRISIS

A weaker festive season will severely dampen the outlook of sectors like automobile, apparel and clothing, consumer durables, tourism and entertainment, and leisure among others.

Although some of these sectors like automobile have pinned hopes on higher pent-up demand post easing of lockdown restrictions, the situation remains largely unclear at the moment. Footfalls have increased but sales have only nudged up slightly.

This is in stark contrast to the sales enjoyed by the automobile sector in previous years. Carmakers are hoping to have better sales during the festive season, but the levels will still be a far cry in comparison to the sales volume recorded during last year’s festivities.

Even if the automobile sector manages to see better growth during the period, the same cannot be said about the tourism sector which is in high demand during festive season. The sector has been one of the worst victims of the Covid-induced economic crisis and some experts hinted that these sectors may have been permanently damaged.

Tourism has been a major contributor to India’s GDP but the 2020 has proved to be a disastrous year for the sector.The coronavirus crisis crippled the hotel and tourism business in India and multiple studies show that people have grown apprehensive about travelling during times of Covid-19 pandemic.

While the situation is unlikely to return to normal for the sector in the absence of a vaccine, some have pinned hopes on the festive season, especially during Durga Puja and Diwali.

News agency PTI quoted tourism industry insiders as saying that since festivities would be dull in light of the ongoing pandemic, some people are sending travel queries. However, these queries are mostly limited to domestic and short-haul segments.

However, Travel Agents' Federation of India (TAFI) eastern region head Anil Punjabi told PTI that these queries have not yet translated into bookings. “Businesses are likely to be much less than what it used to be in the previous years,” he said.

This could have serious implications on the thousands of crores worth revenue generated during this period. The sector, much like the stressed entertainment and leisure sector, may see weaker growth as long as the virus remains a threat.

INCREASED UNCERTAINTY

Uncertainty is not good for business and the pandemic has increased it like never before. Higher uncertainty makes it difficult for businesses to predict customer choices and preferences. It could severely impact sales during the all-important festive season.

For instance, most businesses are worried about how much stock they should have during the festive season in view of the sharp slowdown in demand. Most companies are already gripping with a labour crisis and are likely to have fewer stocks for the festive season.

Even e-commerce companies are uncertain about demand. While firms need to hire more people during the busy festive season, a Financial Express report indicates that most online firms prefer these days to hire workers on fixed-term contracts.

This means increased uncertainty during the upcoming festive season may not result in higher employment opportunities — something that is necessary for boosting economic growth and demand.

DEEPER GROWTH HURDLE

Many economists and growth surveys have pegged a comeback for the Indian economy in the third quarter of the year due to the festive season. If the festive season sees good numbers, India’s economic woes going into next year would be lesser, according to industry players.

This is why most players from the industry are requesting the government to announce fresh direct stimulus measures before the festive season picks up pace.

They feel that such measures will help in significantly boosting demand during the festive quarter and significantly revive GDP growth in the third quarter of FY21.

If the government decides against announcing direct measures ahead of the festive season, chances of any form of growth recovery in FY21 may fizzle out.