Covid Situation Could Stall Recovery In The Capital Goods Sector

The fear of renewed lockdown in some states continues to loom due to rising coronavirus cases across the country is leading to economic and business uncertainties, according to CARE Ratings.

"Therefore, uncertainties relating to completion of projects will remain in FY22 as well which have the potential to stall the recovery seen so far in the capital goods sector," the ratings agency has said.

"The Covid-19 Pandemic severely impacted the demand for capital goods in the country as business and industrial activities remained subdued for most part of FY21. Low capacity utilisation rate and uncertainty caused by the pandemic forced most corporates to defer their capex plans during the year which impacted production of machinery and equipment required to build those capacities.

However, even before the pandemic broke, the sector was going through a challenging period due to subdued global conditions owing to several issues including the US-China trade war. After a 2.7% growth in FY19, the Index of Industrial Production (IIP) for Capital Goods declined by a sharp 13.96% in FY20. IIP of capital goods continued to fall and was down 23.5% during April to February FY21. This is a steep fall as it came over an 11.5% fall during the corresponding period of the previous year (April to February FY20)," CARE Ratings has said.