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India’s Intermittent Lockdowns Curb Green Shoots of Economic Recovery

India’s Intermittent Lockdowns Curb Green Shoots of Economic Recovery
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Since then, India’s coronavirus situation has gravely worsened—the single-day tally of coronavirus cases crossed the 30,000 mark for the first time on July 16, pushing the total number of recorded cases to over 1 million. Major Indian states have recently reimposed lockdowns across various cities to curb the spread of infection.

Source: The Economic Times

This reinstating of lockdowns, along with ambiguity around when India will “flatten the curve”—a plateau and eventual fall in the rate of infection—is weighing on the country’s economic recovery and consumer sentiment alike. Below, we lay out some of the impacts to Indian e-commerce and brick-and-mortar retail.

Impact on E-Commerce: Two Steps Forward, One Step Back

E-commerce companies are facing sustained disruptions due to uncertainties around the movement of goods. For example, fashion retailer H&M halted its online business in India for five days leading up to July 13 as the local government in Mumbai city had directed warehouses to remain shut. H&M also had to pull out of fashion e-commerce retailer Myntra’s recent sale, which was scheduled from July 10 until July 14.

Differences in lockdown guidelines across regions are adding further challenges to the supply chain and last-mile delivery. For example, the Karnataka government has allowed e-commerce companies such as Amazon and Flipkart to deliver both essential and nonessential goods in Bangalore, but cities such as Kolkata and Pune have restricted e-commerce operations.

E-commerce deliveries are already taking longer than usual due to earlier disruptions and variance in local infection rates. For instance, many leading e-commerce companies have their warehouses and fulfillment centers in Bhiwandi, a warehouse hub in the suburbs of Mumbai and one of the worst hit areas in the state of Maharashtra, which has already seen the nation’s highest number of coronavirus cases. Furthermore, various restrictions on the movement of vehicles adds challenges for last-mile delivery.

Impact on Brick-and-Mortar Retailers: Intermittent Lockdowns Likely To Slow Down Return to Normalcy

Brick-and-mortar retailers have been walking a tightrope since the nationwide lockdown was lifted in May, due to unpredictable consumer demand and weak sales. However, with the momentum of pent-up demand on their side, retailers are optimistic about getting back to some normalcy by the festive season (which usually begins in October)—albeit with some caution, as the intermittent lockdowns will be an impediment for retailers to recoup lost sales and return to growth.

Sales and footfall estimates since the reopening of stores have been encouraging for various nondiscretionary retailers, according to interviews conducted by Indian business news company BloombergQuint in June:

  • For brands managed by Indian multinational conglomerate Aditya Birla Group, footfall in June ranged between 60% and 70% of pre-Covid levels, according to Amit Pande, Brand Head for luxury retailer The Collective.
  • Sandeep Kataria, CEO of footwear retailer Bata, said, “Judging the national direction of demand remains hard. While some stores have seen sales resume to 60–70% of the usual, at others it has been lower.”
  • Sales at sportswear brand Under Armour’s few stores have been better than pre-Covid levels, according to Tushar Goculdas, Managing Director in India.
  • Sales at Vijay Sales, a consumer electronics chain, are at 60% of pre-Covid levels in aggregate since reopening, according to the company’s Managing Director Nilesh Gupta. Of its 102 stores, around 30–40 stores have reopened, but these are subject to various operational restrictions (such as opening only on alternate days).

With a spike in the number of coronavirus cases across India, intermittent lockdowns may dent consumer sentiment and challenge brick-and-mortar retailers.

Impact on Consumer Sentiment: Is the Worst Yet To Come?

We expect consumer confidence to be negatively impacted by the reinstatement of lockdowns. In May 2020, the Reserve Bank of India’s bimonthly consumer confidence index fell to a historic low of 63.7, from 85.6 in March.

On the other hand, the Nomura Business Resumption Index (NIBRI), a weekly measure of economic recovery, shows that business intensity rose steadily through May and June to a peak on June 28, before falling again. The data suggest a bump in the economic recovery of India, but that the recovery may be hindered by the recent intermittent lockdowns as well as deteriorating consumer confidence—a worrying sign as the recovery may therefore not represent a “swoosh,” which many economists initially expected.

Note: NIBRI is calculated using power consumption data, air quality index, Google’s mobility report and unemployment data

Source: Nomura