FICCI - Dhruva Advisors Business Survey

Jun 21, 2021

• With states getting into the 'unlock' mode, there are early indications of improvement in economic activity; companies hopeful of better performance in the next 6 to 12 months
  
  
• COVID-19 second wave impacted business activities; 58% of respondents report weak demand; 56% 'managing costs' and 43% 'tight financial liquidity' as major issues
  
  
• Country must prepare well for subsequent waves; Mass vaccination only lasting solution to the COVID crisis 

 

NEW DELHI, 21 June 2021: The second wave of the COVID-19 pandemic that hit India during April-May 2021 was extremely intense and impacted the functioning of businesses, which had just started moving on the path towards normalcy after the end of the first wave. The swift pace at which the virus travelled across the nation led to a sudden jump in the overall infections with daily new case load touching new highs and putting enormous pressure on the country's healthcare system. To break the chain of transmission, unlike last year when the country went into a national lockdown, this time state governments prioritized micro-containment zones and localized lockdowns based on the evolving situation on the ground. While such measures were necessary, these did have an impact on economic activities.

 

A nationwide survey of businesses conducted by FICCI and Dhruva Advisors shows that 58% of the companies saw a 'high impact' on their businesses due to the state level lockdowns. Another 38% reported 'moderate impact' on their operations due to the state level lockdowns. With different parts of the country under different sets of restrictions and consumer sentiment impacted due to the ferocity of the second wave, an evident dip in demand was witnessed by companies. 58% of the surveyed companies reported 'weak demand' as the biggest challenge they are facing under the current environment. This was followed by 'managing costs' (56%) and 'tight financial liquidity' (43%) that emerged as other significant issues companies have to deal with in the present situation.

 

This time it was not just demand in urban areas that was constrained but even the rural areas saw a compression in demand with 37% of the companies reporting a 'high impact' on their sales in rural markets. The weak demand situation impacted capacity utilization with 40% of the companies seeing utilization rates of less than 50% of their installed capacity.

 

While the impact of the second wave induced lockdowns on businesses is clearly visible, there is a silver lining on the horizon. This relates to expectations about business performance over the next 6-12 months. With different states getting into the 'unlock' mode, there are immediate indications of improvement in economic activity. This trend is also reflected in the expectations companies have regarding capacity utilization over the next 6-12 months. Survey results show that nearly 63% of the companies foresee utilization rates to be over 70% in the next two to four quarters.

 

Commenting on the survey results, Mr Uday Shankar, President, FICCI said, "The second wave of the COVID-19 pandemic was particularly challenging. It disrupted normal functioning of businesses and COVID management became a priority both at personal and institutional levels. With the number of new cases ebbing and states getting into the 'unlock' mode, there is hope that business and economic activities would regain normalcy in the months ahead. Even as we see signs of improvement, we must prepare ourselves well for the subsequent waves. While the survey throws up several suggestions, clearly 'vaccination at scale' has to be the priority if we have to beat COVID-19 and put it behind us. A third wave with similar or greater intensity, as is being projected by some experts, could undo the gains seen in the recent weeks."

 

Mr Dinesh Kanabar, CEO, Dhruva Advisors stated, "The survey reflects the impact of the second wave on the Indian economy and the sentiments going forward. While there is an immediate effect on the businesses in terms of capacity utilization and demand, the industry is optimistic about the future and hopeful of better performances. Importantly, there is a significant expectation from the Government that we are well-prepared for subsequent COVID-19 waves."

 

Even as companies brace for improvement, the need for support from the government remains high on their agenda. According to the feedback received in the survey, the MSME sector has faced the maximum brunt and there is an immediate need for relief to this sector. This view was expressed by nearly 65% of the surveyed companies. Amongst other measures listed by companies for relief, ease of compliances, moratorium for loan and interest payments and incentives for boosting demand stand out. On the taxation side, some of the key reforms companies wish to see include reduction in the tax rates, reduction in compliances and expediting refunds.

 

As the economic situation improves, it is critical that we do not lose sight of the healthcare challenge lest we are forced to revert to another lockdown, which could once again wipe away the gains made. Members of corporate India feel that we need to prepare ourselves well for the anticipated third wave of COVID-19 and act on the lessons learnt from our experience during second wave.

 

Companies have articulated a set of measures that they feel government must take to avoid the panic and stress that got created during the last wave. The top 5 priorities that should form the core of our preparatory work for dealing with any subsequent waves include [1] ramping up investments in healthcare infrastructure in tier 2, tier 3 cities and in rural areas; [2] maintaining a sufficient pool of essential medicines for COVID-19 management; [3] continuing with newly created temporary facilities for COVID-19 management; [4] strengthening testing infrastructure across the country; and [5] setting up a national facility for vaccine manufacturing with government funding.

 

In addition to the above measures, government must take all steps to scale up vaccination drive in the country. The only way we can win the war against COVID-19 and put this behind us is through mass vaccination. The importance being attached to vaccination by corporate India can be gauged from the fact that nearly two thirds of the surveyed companies have launched a vaccine drive for their employees. As a result of these efforts, we see that in case of nearly 62% of the companies up to 50% of the staff is vaccinated with one dose and for 72% of the companies upto a quarter of the staff members have been administered both the doses.

 

As vaccines supplies improve in the country, central and state governments must work in a seamless manner to distribute the vaccines across the length and breadth of the country. According to the surveyed companies the vaccine drive in the country can be scaled up and made more efficient by creating more booths at public places, setting up facilities in cooperative societies and by promoting tie-ups with corporates. Other suggestions include setting up vaccination facilities at airports, railway stations, bus depots, schools and village panchayat ghars; organizing mobile vans that can undertake vaccination in slums, rural areas and planning for vaccination of the elderly and people with disabilities, who have limited mobility, at home.