Rising Covid-19 figures could blunt sharp rise in services

A FIVE increase in the daily number of Covid-19s over the past seven days to 33,750 on Monday, and new restrictions on the movement of people by states, suggest the service sector will be under pressure and likely flatten if the number of cases continues to increase in the coming weeks. But it can be short-lived.

According to Google Mobility Index, visits to outlets such as restaurants, malls, movie theaters, etc. on November 3 – a day before Diwali – were 13% higher compared to a pre-Covid benchmark: the highest in all of 2021. Since then, the metric has dropped and has remained close to “0” during the most of the month of December. With the new crackdowns, a drop below zero is likely.

Likewise, visits to grocery stores and pharmacies, which were at their lowest of -40% in May 2021 during the second wave of Covid-19, have recovered and have remained since June. This measure also peaked on November 3 – 77% above the pre-Covid benchmark – and has since stagnated between 33% and 55%. With many contact-intensive services – from restaurants and hotels to malls and movie theaters – being negatively affected due to the restrictions, a drop is expected in the coming days.

The baseline is calculated as the median value of the corresponding weekday during the five-week period between January 3, 2020 and February 5, 2020.

Another sign of slowing growth comes from data from the CMIE (Center for Monitoring the Indian Economy) on the unemployment rate which reached a four-month high of 7.9% in December 2021; it was 7 percent the previous month. In December 2020, it was 9.1%. The urban unemployment rate rose to 9.3% in December 2021, from 8.2% the previous month, while the rural unemployment rate fell from 6.4% to 7.3%, according to the data.

The service sector had seen healthy growth in the second half of calendar year 2021 until mid-December; the latest goods and services tax collections had jumped 13% year-on-year in December (for sales in November 2021) to Rs 1.29 lakh crore. This increase has occurred despite a reduction in electronic invoices generated over the same period – an indication of a higher collection of services than goods, alongside greater enforcement actions.

But in the past week or so, almost all of the major states – Maharashtra, Karnataka, Gujarat, Delhi, West Bengal, Haryana, among others – have clamped down on economic activity, cut hours at shops, restaurants and hotels. , and put a cap on the number of people in weddings or movie theaters. With the service sector accounting for over 55% of national GDP, economists said the restrictions would hurt growth, but not substantially.

“There will be some impact mainly on contact intensive services. If the restrictions last for a few weeks, there may not be much of an impact on the recovery, but if they persist, not only the service sector, but the impact will be felt on the goods side as well. Prolonged restrictions on the services side will then affect wages and employment levels, which will also lead to reduced consumption of goods. Localized restrictions for areas such as roads, railways, etc. will also affect central and state government spending, as these entities are expected to be supported despite reduced operating capacity, ”said Devendra Kumar Pant, Chief Economist, India Ratings.

Nomura India said that while state restrictions could derail the recovery of contact-intensive services in the first quarter of 2022, the global experience suggested a weaker impact than previous waves and a rapid rebound in growth. once cases have peaked. Soumya Kanti Ghosh, the group’s chief economic adviser, State Bank of India, also said the restrictions would affect the services sector. “Demand for the service sector, unlike goods, cannot simply be pent-up demand. Previously we were forecasting a GDP growth rate of 9.3-9.6%, now we see it towards the lower end of the range, closer to 9.3%, ”said Soumya Kanti Ghosh, chief economic adviser. of the group, State Bank of India.

In December 2021, Delhi announced a 50% cap on restaurant capacity given the spread of the Omicron variant and allowed them to only stay open from 8 a.m. to 10 p.m. Last week, the state ordered movie theaters to be closed – which are generally considered the main attractions of shopping malls, indirectly contributing to attendance at other establishments such as restaurants, shops, etc.

The West Bengal government has also ordered restaurants and bars to operate at 50% capacity and only until 10 p.m., until January 15. It has also introduced tough travel restrictions, as it did in previous Covid-19 outbreaks. It has banned all flights from Delhi and Mumbai except Mondays and Fridays.

The government of Maharashtra bans nighttime travel and imposes restrictions on gatherings. In weddings, where the movement of people is staggered, the total number of participants at any one time should not exceed 100 in confined spaces and 250 in open areas or 25 percent of the total room capacity, depending on the lesser of the two. In the event of social, political or religious functions and gatherings, it limited the number of participants to 100 in closed spaces and to 250 in open areas or to 25% of the space, whichever is less. . He also ordered restaurants, gymnasiums, spas, movie theaters and theaters to continue operating at 50% of their capacity.