Service Sector Contraction Unprecedented In Indian History: RBI Report

The Reserve Bank of India has described the contraction within the service sector throughout 2020-21 as “unprecedented in Independent India’s history”, observing that even through the international monetary disaster, it had remained resilient.

“The contraction in the services sector in 2020-21 is unprecedented in independent India’s history. Even during the global financial crisis, the services sector remained resilient. In 2020-21, however, construction suffered in the aftermath of the pandemic due to an inventory overhang in residential housing, coupled with stressed liquidity conditions which restricted new launches. The situation was exacerbated by imposed social distancing norms which led to construction activity in the first quarter of 2020-21 getting reduced by half year-on-year,” the central financial institution has famous in its annual report for 2020-21.

Industrial sector downturn

On the economic sector, the central financial institution stated that the gross worth added development within the trade contracted sharply on a year-on-year foundation by 7.4 per cent in 2020-21.

“This is the fifth year of sequential deceleration, including two successive years of contraction in the industrial sector. During the first quarter of 2020-21, industrial activity plummeted sharply, registering a contraction of 31.1 per cent. The turnaround in industrial activity since then has been volatile,” RBI has stated.

IIP information exhibits that the contraction was extreme in case of shopper durables and capital items, as customers shunned discretionary expenditure whereas companies curbed funding. Cumulatively, the IIP declined by 8.6 per cent in 2020-21. At the sub-sectoral degree, nonetheless, electrical energy, fuel, water provide and different utility companies recorded a development of 1.8 per cent by way of gross worth added, the central financial institution has famous additional in its annual report.

The decline in industrial exercise, it has stated, was witnessed throughout nations. India witnessed the severest downturn and it was additionally one of many first to revive from contraction in September 2020, together with South Korea and Brazil, although development remained risky. The development was supported by enchancment in shopper durables and non-durables, particularly shopper electronics and white items, benefitting from pent-up demand, the report noticed.

Hospitality and transport sector

“The contraction was also severe in contact intensive sectors as activities in hotels, restaurants, and passenger transport remained much below pre-Covid-19 levels. There has been a swift recovery in trading activities as evident in the collection of the goods and services tax (GST) and issuance of E-way bills. This has also imparted a boost to freight traffic. The performance of information technology (IT) companies has been better than their counterparts in the hospitality and the aviation segments,” the central financial institution stated.

Housing sector state of affairs

Referring to the housing sector, the RBI has famous that the “revival in the segment during the second half of FY21 has been sharp with sales almost doubling in the third quarter of the fiscal sequentially, supported by favourable interest rates, adequate liquidity and steep discounts by developers to clear inventory, besides reduction in stamp duty by a few states”. 

The RBI in its ahead trying outlook has stated that development prospects primarily rely upon how briskly India can arrest the second wave of Covid-19 pandemic.

“While the economy has not moderated to the extent during the first wave, the surrounding uncertainties can act as a deterrent in the immediate period. On the supply side, agriculture has proven its resilience, enduring the shock of the pandemic, thus providing support to rural demand and the economy at large,” it has concluded.

In case of companies, restoration has been various, with revival in development, commerce, freight transportation and knowledge know-how (IT) associated actions. While efficiency of contact-intensive sectors continues to be sub-par, it is usually enhancing, the central financial institution has summed up.

Going forward, because the vaccination drive picks-up and circumstances of infections fall, a pointy turnaround in development is probably going, supported by robust beneficial base results, the RBI has expressed hope.