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India's GDP contracts, revival of demand will be a gradual process

Industry demands better stimulus from the government to aid growth

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NEW DELHI: Recording the worst slump since India started releasing quarterly GDP data in 1996, the Indian economy contracted by 23.9 per cent in the month of June 2020. According to experts, the country has lost Rs 13 lakh crore of income in Q1. The downturn, which was quite evident from the previous few quarters was catalysed by the lockdown and is expected to last beyond the pandemic.

DAN CEO APAC & chairman India Ashish Bhasin said, “It is quite obvious that GDP numbers are not going to be good because as we know the most significant part of the industry and economy was virtually in a lockdown. It has set us back 2- 2.5 years.”

Madame executive director Akhil Jain noted, “Primarily fear for the future has led to chaos. The industry is in the expansion and development stage and was already working on thin margins with a huge dependency on financial institutions etc. Poor support has led to either suspension of manufacturing operations or reduction. E.g. the moratorium hasn’t helped anyone much as it will increase the burden in the future. Had there been a waiver on interest for a quarter - it would have corrected the downfall to a great extent.”

Speaking about the advertising industry, Bhasin noted that he doesn’t see advertising coming to 2019 levels even in 2021 but perhaps by 2022. “There are severe challenges, including liquidity crisis, that a significant part of the economy is facing. Therefore the revival of demand will be a gradual process. It is not going to be a sudden V-shape recovery. It will keep improving gradually, month on month.” 

The advertising industry faced massive losses during the first half of the year, firstly because of NTO 2.0 and then by Covid2019 lockdown. DAN India CEO Anand Bhadkamkar had shared in an earlier interaction, “Certain economists are predicting that the GDP growth (that was estimated at about 4.5 per cent) may dip up to 1.5-1.9 per cent. If that happens, we will be slipping down by more than half almost. We just have to wait and watch how things pan out.”

Now, the industry estimates for the yearly GDP stands at negative 15-20 per cent as shared by Bhasin, indicating much bigger losses that the industry had expected in the earlier months. 

Ethinos Digital Marketing executive director & joint MD Benedict Hayes shared, “We saw an immediate 40 per cent reduction in marketing investments and spends across in the first month of lockdown, by month 2 that touched 65 per cent. It has recovered somewhat of late, but by no means back to where it was. Less expendable income and shopper sentiment mean conversion rates to sales will drastically drop below normal. This means media spends have to be more efficient and this is where we have seen technology make a big difference. Some industries like entertainment, healthcare, gaming, EdTech have seen a positive, but generally, everyone has taken a hit.”

Industries like travel, tourism, manufacturing, and construction are expected to face the worst of the brunt in the coming months, which will further impact the GDP. The retail sector will also face some struggle to get up from here. 

Jain shared, “We are expecting the demand to reach 100 per cent only by the second quarter of the next financial year. This FY, we are expecting to reach 65-70 per cent of last financial numbers.”

However, the industry is seeing the silver lining in a few sectors.  

Bhasin noted, “On the positive side, the rains have been good, and the demand should start picking up. The festive season’s start should also help in bringing things back to normal. The rural areas and tier 3-tier 4 towns are likely to have more money in consumers’ pocket, which is a good sign because the rains have been good and rural demand should pick up.”

Arya Collateral MD Prasanna Rao, however, added that just the agri sector and rural spending might not be the best antidote to the ailing economy. “If we look minutely into the data just released, agriculture alone has shown positive growth with a share of 18 per cent in GDP. The only bright spot was the rural economy, where the farm sector grew at 3.4 per cent year-on-year in the quarter. The agriculture, the farm sector is still growing, but it might not be enough to pull out the economy from this stagnation. There is no alternative to public spending in these trying times, people are locked inside their houses and only spending on essentials.”   

BYJU's head of marketing Atit Mehta says, "According to UNESCO - nationwide closures of educational institutes during this crisis are impacting over 90 per cent of the world’s student population, which is around 1.5 billion learners across 186 countries. Online learning platforms have become almost a necessity in today’s scenario to ensure learning and education for kids around the world is not impacted."

Mehta further adds that with students now completely depending on online learning to fulfill their daily learning needs, the Covid2019 crisis has caused a paradigm shift, making online learning a vital part of mainstream learning. "It has put the spotlight on the ed-tech sector. At BYJU’S, we introduced several new programs to help students continue learning even during this difficult time. From introducing courses in vernacular languages to launching more subjects, our teams worked diligently to keep bettering our learning programs. We also launched ‘BYJU’S Classes’ - a comprehensive online tutoring program to offer students a platform to solve their doubts instantly. We have received an overwhelming response with almost 3X increase in the number of students accessing our app. Earlier students used to spend 2-3 days per week on our platform. As a result of the lockdown, they are using the platform on a daily basis and spending an average of 100 mins per day. We saw over 20 million new users access our platform. There has also been a significant behavioral shift in the parents’ mindset towards online learning as they have witnessed their children benefiting from it in person and seen how this format of learning can serve as an enabler in their growth. We believe it adds even more responsibility on us to provide exceptional home learning opportunities to students today. Every crisis presents an opportunity and this is that inflection point for education, where we expect the rise of a blended model of education. The proliferation of smart devices coupled with the democratisation of the internet will fasten this process. Screens have become the primary mode of content consumption for the new generation. This will further boost the adoption of the new model of learning," adds Mehta.

Another sector that is expecting a positive upturn from here is the logistics sector. LetsTransport CEO & co-founder Pushkar Singh highlighted, “The booking volumes on our platform have picked up mostly due to e-commerce and home deliveries picking up. In the initial months of the lockdown, it was very difficult for enterprises to continue operating with traditional companies using archaic processes. We saw enterprises transition to working with more organized logistics players as the focus was on reliability in the supply chain. While the overall economy has contracted affecting every sector, it will certainly push the logistics sector to innovate and adapt faster. Going forward, logistics capabilities will prove to be a key differentiator for brands, all of whom are trying to reach their customers more quickly and more efficiently.”

The industry has no hopes for the market to revive this year and is expecting it to reach 2019 levels by 2022. 

Hayes noted, “Honestly, I feel the road to recovery will be long and will stretch until the second half of next year. We are witnessing something that has not happened before and will see a lot more fallout before recovery is complete as well. Restaurants, travel, and hospitality companies are in absolute dire straits, as well as high street retail, automotive, and real estate. Without support, I feel a lot of big businesses will be under extreme pressure. It looks like some economies such as the UK steamrolled into a full-blown recession, and the ripples of the western markets will definitely be felt here.”

Jain highlighted the need for better economic stimulus from the government stating that the earlier packages did not fare well for the industry at the ground level, “The package didn’t help the MSMEs at all. The upgrade in the limits was an eyewash, e.g. the limit for benefits was increased to 250, but the investment and bank limits weren’t touched making it non-utilisable for a lot of MSMEs.”

Rao suggested, “The only way possible from here are stimulus announcement and public expenditure outlay in infrastructure, which may bring in the channelisation of economic fundamentals required for the country's growth."

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