So Near, So Far: Recovery Remains Elusive For Contact-Intensive Services

In March, stand-up comedian Papa CJ’s diary was chock-a-block, with bookings for two international tours, two international festivals, corporate shows and theatre dates.

All were cancelled when the pandemic hit home and income dropped to almost zero between March and July. Comedy clubs shut; comedian friends had to find alternate jobs to sustain themselves.

Papa CJ, an MBA from Oxford and an ex-management consultant, also went back to corporate training. Things started to improve beginning August. “Companies realised that mental health was starting to become a real challenge for people working from home,” he tells BloombergQuint. Since then, while business is far from normal, he is “now quite busy uplifting people virtually.”

"Stand-up comedy is a bit like sex, in that it is best enjoyed live, the comedian said. But the pandemic-compliant alternative is not so bad either. “If you can customise your content and make it interactive, then online shows work surprisingly well.”

From shows to movies, restaurants to retail, gyms to beauty parlours, contact-intensive services remain the last part of the Indian economy to recover. While most services have been allowed to reopen with physical distancing guidelines in place, the pickup across many of these sectors remains uneven, according to conversations BloombergQuint had with a host of businesses.

Even as the rest of the economy unlocked, the government took time to re-open contact-intensive services for fear of mass contagion, says Arun Singh, global chief economist at Dun & Bradstreet. “The industry remains most impacted not because of the lockdowns alone, but also because of the fear of consumption of non-essential but contact-intensive services.”

Contact-intensive services contribute 17.7% to India’s GDP, according to a research Dec. 10 report by Nomura. While GDP is estimated to contract by 0.8% in the October-December quarter compared to a decline of 7.5% in the preceding quarter, the process of normalisation remains uneven and incomplete and services continue to lag, the report says.

Travel And Tourism

Domestic airline bookings are now at 85% of pre-Covid levels on EaseMyTrip, says Nishant Pitti, founder of the Indian online travel company. At an industry level, domestic bookings are likely at about 70%, he estimates. While the recovery in air travel was earlier expected to take two years or so, now domestic air travel is expected to match pre-pandemic levels by April next year, he says.

Travel by air has proved to be safe relative to other modes and competitive tariffs have enabled passengers to upgrade. Corporate travel budgets have been slashed but small business travellers are returning. Families, still wary of travel, are also likely to return after the vaccines begin to be rolled out, Pitti says.

But, hotels across the board are still struggling, with the ones with two- and three-star ratings being the worst hit.

Rajesh Mudgil, secretary at the Indian Association of Tour Operators, says that for them recovery remains conspicuously absent. Despite the industry’s efforts to gear up, it is in a catch-22 situation. While foreign travel is yet to resume, domestic travelers are making their own bookings to visit areas in close proximity and prefer to use their own transport to the possible extent. Recovery is at least an year away, says Mudgil, adding that even if international travel picks up, India’s population density will remain a deterrent for foreign tourists.

Recreation

While hotels and restaurants were permitted to open from June 8, bars opened later.

For instance, all outlets of The Beer Cafe were opened only by September. From about 42% of pre-Covid sales in September, the cafe has progressed to about 70% now, says Rahul Singh, founder of the chain which has over 40 outlets across at least 10 cities.

While occupancy remains restricted to 50% because of government orders, customers are now spending more when they visit, says Singh, who is also a trustee at the National Restaurant Association of India. Recovery is highest in smaller towns, likely driven by those who have moved back and continue to work from home, according to him.

Pranav Rungta, the head of the Mumbai chapter at the NRAI, also says that business is at about 60-70% of pre-Covid for those restaurants which have opened. But about a fourth are likely to have gone out of business while about 10% are yet to resume operations. Business also remains impacted because of the local government mandates restaurants to close by 11:30 p.m. and restrictions on occupancy, said Rungta.

Beauty And Wellness

Now with gyms finally having opened up, Cure.Fit, with fitness centers across 130 locations, expects a faster rate of progress in the months to come, says Naresh Krishnaswamy, growth and marketing head at Cure.fit. “Overall, we expect to be at 50% of pre-Covid revenue by January-end.” Since at-home workouts have proved effective and convenient, some people might prefer a mix of both at-home and gym workouts going forward, he accepts.

Beauty too is back, says Pooja Sahgal, VP and head of marketing at Kaya. The skincare, haircare and beauty chain is now back at 80% of pre-Covid business from 40% on re-opening in August. By the end of December, Sahgal expects it to reach 90%. The beauty chain is targeting premium clientele who are willing to spend more for safety.

For some others, business has already overtaken pre-Covid benchmarks because they offer at-home services.

Urban Company, which provides home services across 23 cities, has seen business exceed pre-Covid levels by at least 40%. While some beauty treatments such as facials are still slow, others have picked up, says Rahul Deorah, the vice president for marketing with the home services platform. "We now do 1.5 lakh haircuts every month for men alone," Deorah says, adding that the segment has grown by 40% month-on-month.

Waiting For The Vaccine

According to Singh, economic activity in contact-intensive segments may remain relatively subdued until a satisfactory number of people are vaccinated.

The Indian government is optimistic that it will be able to give emergency approval for Covid-19 vaccines in the near term, possibly by the January-March 2020 quarter, Nomura said. Vaccine distribution challenges remain, but as vaccines become more readily available, the economy is likely to witness a spurt in activity in contact-sensitive services, it adds.

"Until then, layoffs and balance sheet problems are likely to continue to wipe out a portion of each industry,” cautions Singh. If there is a delay in vaccinations of a good enough number of Indians, that could set back recovery even further, he adds.