Rebound. Revive. Recovery. Terms you may have increasingly spotted in reports related to Indian economy and its performance in the past few weeks and months. But, if those are terms that warmed the cockles of India Inc's hearts initially, it is now increasingly being replaced by foreboding over ‘pent-up demand’.
To be fair, pent-up demand, referring to ‘a rapid increase in demand for a product or service usually following a period of subdued spending’, did come to the help of Indian economy as it tenderly opened up after the pandemic-induced lockdown in the summer of 2020. Why then, has it suddenly become something of a worry?
The massive decline in GDP to minus 24 per cent in the first quarter (April-June) of financial year 2021 has been moderating since then, with the overall annual GDP fall expected to be only 7 per cent. Industrial Production (IIP) and Purchase Managers Index (PMI) all indicate sequential recovery, while GST collection is scaling new records. And if you look at the retail side, items ranging from cars to electronics show robust sales, despite uncertainty over jobs, salaries and infection, Indians did start spending once commercial activity opened up after the lockdown.
A lot of that was pinned on ‘pent-up demand’, which could be attributed equally to items people could not purchase because of the lockdown, as well as people going to buy objects of desire once they got an opportunity to do so, after the draconian stifling of all normal life activities caused first by the lockdown, and then once Unlock started, by the fear of rapid transmission. Businesses discovered to their pleasant surprise that even a fear of infection could not keep people away from buying a mobile phone or household appliance, or order a takeaway of restaurant food they had missed out on for long. And once the traditional festive shopping season came around with the Navaratras and Diwali, purse strings were further loosened and spending picked up as if there was no pandemic blowin’ in the wind.
So far, so good. But now, with the last quarter of the financial year and the festive season over, fears abound whether the good showing due to ‘pent-up demand' is headed for a fall. Many top industrialists have cautioned against over-optimism on this account. Rating agency Icra warned in November that all the super spending and business sales happening during October, the start of the traditional festive season, was pent-up demand and “an exaggeration of the true recovery on the ground”. Maruti Suzuki chairman R.C. Bhargava has been categorical that while sales were good, one should temper it as it was “pent-up demand that drove up sales”. Auto sales have been riding a wave over the past few months, but “not sustainable”, according to MG Motor India president Rajeev Chaba, as it was mainly due to pent-up demand.
The fear now is to not be fooled by the uptick in indices, like inflation rate stabilising, now that the festive shopping and ‘pent-up demand’ release have probably come to an end. “We continue to see high liquidity but low credit off take due to poor consumer demand,” pointed out Sanjay Kumar, CEO & MD, Elior India. “Hence, once the pent up demand is exhausted, it will be critical to ensure demand upswing to see the real benefit of moderate inflation.”
This fear has seen sectors ranging from real estate to the mobile phone industry, and from items ranging from gold to automobiles, all of which had a good showing in the latter part of 2020, to remain cautious. So much so that Finance Minister Nirmala Sitharaman herself came out and declared last month that the economic recovery post the pandemic was sustainable and was not just pent-up demand. Ironically, government spending would be key to ensuring there is no further dip in the economy once pent-up demand is over, according to experts. The lock, and the key, are both with Sitharaman.