Fear & Loathing: FY21 pent-up demand expected to fizzle away

New Delhi, June 29 Predictions of a possible third wave of Covid-19 along with high inflationary pressure are expected to hamper the pent-up demand in 2021, economists said.

At present, India suffers from a resurgence of Covid cases. However, a sharp decline in new infection rate has triggered hopes of economic normalisation.

In contrast, low consumer sentiment as well as falling household income levels amid job losses will negatively impact the off-take of several sectors.

Consequently, the current situation has led various multilateral organiations to revise India's GDP growth rate downwards.

"Overall, we expect discretionary spending on consumer durables and areas such as home improvements may be limited in the near term, following the spending that took place last year," said ICRA's Chief Economist Aditi Nayar.

"Moreover, revival of spending on contact-intensive services will take a cue from the vaccination progress," Nayar added.

Besides, industry insiders portend that high inflation has countered the positive effects of ultra low interest rates.

Resultantly, in spite of re-stocking activities that has propped up GST collections, along with record low interest rates, might not sway many consumers to make discretionary purchases this time around.

Additionally, fears of a possible third Covid wave have kept purse strings tightened, the experts said.

"The fall in most high-frequency indicators was not as steep as last year, thus the pent-up release was also not as sharp. The quasi lockdowns were less stringent this time around, implying the supply constraints were not as tight unlike last time," said Madhavi Arora, Lead Economist, Emkay Global Financial Service.

"The recovery ahead