The industrial production had almost come to a standstill in the months of April and May.
The coronavirus pandemic made the year 2020 unforgettable as it shook all the pillars of the economy and left almost all sectors in despair, at least during the early months. Now, as the eventful year is coming to an end, it is interesting to look back at different economic areas as to how those performed. Undoubtedly, the agriculture sector held the baton of economic growth while other sectors were trying to touch the breakeven. Even now, the farm sector is expected to significantly help in the economic revival process. The production growth in pulses, oilseeds, cotton, and sugarcane in this kharif season would be a support factor for sustaining demand, especially in the post-festival season as the money earned through sale of crop which ends by December can be spent in early 2021, said a report by Care Ratings.
On the other hand, the industrial production had almost come to a standstill in the months of April and May. IIP had contracted by 57.3 per cent in April, which gradually recovered to 0.2 per cent in September and 3.6 per cent in October. However, it is doubtful if the growth momentum will sustain post-December when the pent-up demand in consumption could end.
Amid strict travel restrictions and diminished demand, the corporate performance was also lacklustre. Nearly 1,435 companies in Q1 showed a 34.5 per cent decline in sales and 28 per cent fall in operating profit, showed Care Ratings’ study. However, after a gradual recovery, 1,686 companies reported 7.5 per cent fall in net sales but an increase of 5.2 per cent in operating profit in Q2. This change in trend was mainly due to cost-cutting by companies to protect profit as turnover fell.
The rating agency estimated that there are limited signs of recovery in the real sector with some industries leading. But even here, there is a bit of apprehension on whether the buoyancy witnessed during the festival season can be maintained. The same is also reflected in the corporate performance which has not been very convincing in the Q2 period. In this case, investment revival looks challenging.