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Prolonged negative impact on consumer sentiment: Report

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The Indian economy is headed into rough waters due to consumer sentiment being lowered as a result of the devastating second wave of Covid-19, according to a new report from ICRA.

Moreover, the bruised consumer sentiment and the high healthcare and fuel bills will limit discretionary purchases in the immediate term, in addition to the expected cut-back in spending on contact-intensive services, leading to a negative overall impact on the economy, PTI quoted the agency as saying.

“As expected, the shrunken base of the nationwide lockdown in April 2020 has boosted the pace of year-on-year expansion of several high-frequency indicators in April 2021, resulting in a widespread improvement compared to the performance in March 2021.

“However, the optimism generated by this trend is limited, as eight of the 13 non-financial indicators in April remained below their pre-COVID-19, i.e. at April 2019 levels,” PTI quoted ICRA Chief Economist Aditi Nayar as saying.

She added that indicators such as GST e-way bills, electricity generation, vehicle registrations and rail freight traffic have slowed down and lost the sequential momentum in April, reflecting the rise in the pandemic infections cases and localised lockdowns.

The early data available for May confirms that this trend is continuing, as the lockdowns have both been extended, and spread to other states, to curb the second wave of the pandemic, Nayar said.

She also said the record high GST collection in April at over Rs 1.41 lakh crore is an aberration and the government will see its revenues falling going ahead.

Nayar said the sharp spike in daily infections in the second wave will have a prolonged negative impact on consumer sentiment. Also, the substantial increase in healthcare bills due to the pandemic, along with high retail prices of fuels, are likely to squeeze disposable incomes in the urban as well as rural areas.

Moreover, after the satiation of the pent-up demand seen during the festive season in 2020, demand for many varieties of consumer durables may be low. “Overall, we expect discretionary spending on consumer durables and areas such as home improvements may be limited in the near-term, in addition to the expected cut back in spending on contact-intensive services,” Nayar told PTI.