The retail and recreation segments are seeing a drop in momentum post the wedding and festive seasons.
There is good reason to cheer the quicker-than-anticipated recovery but the optimism needs to be tempered. Recent signals from the economy are mixed: the core sector contracted for the third straight month in December while demand for diesel has been slowing. The sluggishness in sales of goods such as two-wheelers is disquieting.
The concern is that rural demand which has been robust may taper off in 2021, though it may hold up better than urban demand. The kharif farm income for FY21 is estimated to have grown by just 7.4% compared with 10.6% in FY20. The summer rabi farm income, however, is expected to grow by 10.4% in 2021 from an estimated 8.7% last year. It is critical the key services sector, which is lagging, sees a pick once the rollout of the vaccine progresses and more transport options are available. The retail and recreation segments are seeing a drop in momentum post the wedding and festive seasons. There are few signs companies are making big-ticket investments; capacity utilisation is going up but slowly. In the absence of investments joblessness could persist. The government needs to step up investments, ensure better credit flow to more sectors and businesses and liberalise FDI norms to attract more foreign capital.