Rising Covid-19 numbers may blunt sharp uptick in services

A FIVE-FOLD increase in Covid-19 daily count over the last seven days to 33,750 on Monday, and fresh restrictions on movement of people by states, suggest that the services sector will be under pressure and likely flatten if the case count continues to rise in the coming weeks. But this may be short-lived.

According to Google Mobility Index, visits to retail outlets such as restaurants, shopping centres, cinema halls, etc on November 3 — a day before Diwali — were 13 per cent higher compared with a pre-Covid baseline: the highest in all of 2021. Since then, the metric has dropped and stayed close to ‘0’ for the most of December. With new clampdowns, a slide below zero is likely.

Similarly, visits to groceries and pharmacies, which were at their lowest of -40 per cent in May 2021 during the second wave of Covid-19, recovered and stayed since June. This metric also peaked on November 3 — 77 per cent higher than the pre-Covid baseline — and has since stagnated between 33 per cent and 55 per cent. With many contact intensive services —from restaurants and hotels to malls and cinema halls – being adversely affected due to restrictions, a dip is expected in the coming days.

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

Another signal of growth tapering off comes from the CMIE (Centre for Monitoring Indian Economy) data on unemployment rate which touched a four-month high of 7.9 per cent in December 2021; it was 7 per cent the previous month. In December 2020, it was 9.1 per cent. Urban unemployment rate rose to 9.3 per cent in December 2021 from 8.2 per cent in the previous month while the rural unemployment rate increased to 7.3 per cent from 6.4 per cent, the data showed.

The services sector had been growing at a healthy clip in the second half of calendar year 2021 till mid-December; the latest Goods and Services Tax collections had jumped 13 per cent year-on-year in December (for sales in November 2021) to Rs 1.29 lakh crore. This increase came about despite a reduction in e-way bills generated during the same period – an indication of higher collection from services than goods, alongside greater enforcement actions.

But over the last week or so, almost all big states – Maharashtra, Karnataka, Gujarat, Delhi, West Bengal, Haryana, amongst others – have clamped down on economic activities, reduced working hours for shops, restaurants, and hotels, and put a cap on number of people in marriage functions or cinema halls. With the services sector accounting for over 55 per cent of the national GDP, economists said the restrictions will hurt growth, but not substantially.

“There will be some impact mainly on contact-intensive services. If the restrictions stay for a couple of weeks, then there may not be much impact on recovery, but if they get prolonged then not only the services sector but the impact would be felt on the goods side also. Prolonged restrictions on services side will then affect the wages and employment levels, which will lead to curtailment of consumption of goods too. Localised restrictions for sectors such as roadways, rail, etc will also affect expenditure of Central and state governments as such entities would need to be supported despite reduced running capacity,” Devendra Kumar Pant, Chief Economist, India Ratings said.

Nomura India said while restrictions by states could derail the recovery in contact-intensive services in the first quarter of 2022, global experience suggested a smaller impact than previous waves and a swift growth rebound once cases peak. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, too said restrictions would affect the services sector. “Demand for the services sector — unlike for goods — cannot be just pent-up demand. Earlier, we were projecting a GDP growth rate of 9.3-9.6 per cent, now we see it towards the lower end of the range, closer to 9.3 per cent,” Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India said.

In December 2021, Delhi announced a 50 per cent cap on restaurant capacity considering the spread of the Omicron variant and allowed them to remain open only from 8 am to 10 pm. Last week, the state ordered shutting down of cinema halls — which are typically considered the top crowd-pullers to malls, indirectly contributing to footfall at other establishments such as restaurants, shops, etc.

The West Bengal government too ordered restaurants and bars to operate at 50 per cent capacity and only up to 10 pm, until January 15. It has also introduced severe travel restrictions, as it did during the earlier Covid-19 surges. It has banned all flights from Delhi and Mumbai except on Mondays and Fridays.

The Maharashtra government prohibiting night movement and imposed restrictions on gatherings. In marriages, where the movement of people is staggered, the total attendees at any moment shall not exceed 100 in enclosed spaces and 250 in open-to-sky areas or 25 per cent of total capacity of the hall, whichever is less. In case of social, political, or religious functions and gatherings, it has capped attendees at 100 in closed spaces and 250 in open-to-sky areas or 25 per cent of the space, whichever is less. It also ordered restaurants, gyms, spas, cinema halls and theatres to continue operating at 50 per cent capacity.

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