The temptations of hope are operating excessive for some good set of numbers for India’s second quarter Gross Domestic Product (GDP) numbers due for launch on Tuesday, November 30th by the National Statistical Office.
Numbers nonetheless play an important function in judging the efficiency of an financial system and whereas we’re effectively into the third quarter of the present monetary 12 months, we’ve got solely the primary quarter GDP numbers – between April and June – to fall again on to date. At the second, the one information factors that every one want to are the excessive frequency indicators, together with electrical energy consumption, tax collections and people produced by the personal sector to evaluate the financial restoration. But then, as we come to almost conclude the third quarter, lots of provide disrupting, input-price rising, new virus variant-laden water has flowed below the bridge, inflicting new worries on the power to maintain any development momentum.
As that is being written, there are considerations throughout on the brand new covid-19 virus variant. Named Omicron – the fifteenth letter of the Greek alphabet and categorized by the World Health Organisation (WHO) as a “variant of concern,” topic consultants want a couple of weeks earlier than they will get to reply a few of the prickly questions being raised round its virulence and transmissibility. Or the important thing query whether or not it might get to supplant the dreaded delta variant? But earlier than this, the third quarter of the present 12 months has already seen corporations speak of provide chain disruptions and rise in enter costs, which is prone to present within the third quarter numbers, each for the financial system and for the company sector.
Profitability & Cost-cutting
But go searching and most of the giant corporations appear to have proven greater profitability even when some haven’t been in a position to see a proportionate improve within the turnovers. Ask Naushad Forbes, co-chairman, Forbes Marshall and the previous president of the Confederation of Industry (CII) on what maybe may clarify this and he says, giant companies have grow to be extraordinarily worthwhile with out a concomitant improve in turnovers as a result of many giant corporations checked out prices carefully and reduce these considerably. Unfortunately, he says, a few of it got here by way of labour misplaced however then a few of it got here again however relaxation was overhead bills and have been about chopping different prices. “Some of it was healthy cost cutting and showed in improved corporate profitability. I do not know if it is true this year as almost every company is reporting lot of pressure on raw material cost and increases in shipping costs with no end in sight. So, while thus far,” he says, “profitability improved, I think we will see a shrinkage in the gross margin results of some of the companies in the second quarter, especially in manufacturing companies where there is a raw material cost. Or engineering and auto companies that have high material cost as a percentage of sales.”
GDP: What Q2 can inform in regards to the 12 months?
Dr C Rangarajan, economist and the previous governor of the Reserve Bank of India (RBI), admirably clear at all times about eager to financial institution his views on precise numbers, says, “today, we have to go largely by the high frequency indicators and they do seem to indicate a recovery in the economic system. But how strong will this become clear with the second quarter GDP number. He expects it to be “reasonably strong because in the second quarter of last year, it was a shinkage of over 7 per cent.” If the second quarter GDP quantity, he says, is a development of 15 per cent then the general development for this 12 months will be about 9.5 GDP.”
Can the bounce again be sustained?
Naushad Forbes additionally agrees on the necessity for probability of such numbers and does see causes to consider that there can be a bounce again this 12 months although his concern is admittedly about development charges subsequent 12 months and about sustaining the expansion momentum. “Will we,” he asks, “get back to growth rate of 7 to 8 per cent as we saw in the mid-2000s? And, whether we will get back to that kind of growth rate next year onwards because,” he feels, “that has to be the goal and I will not take it for granted that we will.”
My studying of the present numbers, he explains, “is that what we will get back to next year onwards will be where we were before the pandemic hit us, which was more of a GDP that was in the 4 to 5 per cent range and I would love to be proven wrong here.”
This 12 months’s quantity can be positive, he says, and is assured that “we will see a bounce back and recovery from last year but in absolute terms we will end March 2022 broadly at the same point at which we were in March 2020, which also means we have lost two years and have to get that back. To recover the lost ground we need to double the rate of growth.”
He asks for example: Do we anticipate H1 (the primary half of the present 12 months) to check with H1 of final 12 months or examine Q2 this 12 months with Q2 of final 12 months. If H1 has to get better then the Q2 quantity should be fairly strong and upwards of 15 per cent and maybe within the area of 20 per cent if we should be again to H1 of 2019-20. But then, he refers back to the numbers from the Centre for Monitoring Indian Economy (CMIE) and sees considerations nonetheless across the labour participation fee although the expectations for the time being are that there might be choose up following the festive season however nonetheless there are questions round how sustainable can these be.
As per CMIE, there was an precise decline within the labour participation fee share from 40.34 on this January to April interval to 40.22 within the May to August timeframe this 12 months. Which, economists level out means we’re speaking of a situation of falling labour participation fee with greater unemployment fee. The unemployment fee (30 day shifting common), in keeping with the CMIE, is 7.04 per cent as on November 27th 2021 as in opposition to 6.52 per cent in January this 12 months. But then, what in regards to the excessive frequency indicators, which all discover displaying a restoration pattern?
Hopes up with the rise in September
But then, there was an obvious glimmer of hope when the CMIE reported findings in October. Labour market information from CMIE’s Consumer Pyramids Household Survey confirmed a dramatic all-round enchancment in September 2021. “Jobs increased by 8.5 million during the month. The unemployment rate declined from 8.3 per cent in August to 6.9 per cent in September. The labour participation rate increased from 40.5 per cent to 40.7 per cent and most importantly, the employment rate inched up from 37.2 per cent to 37.9 per cent.” A spotlight of the rise in employment in September 2021, in keeping with the CMIE, was the rise in salaried jobs. These elevated by 6.9 million from 77.1 million in August to 84.1 million in September. Of all the most important occupation teams, salaried jobs noticed the largest improve. This massive bounce in September brings salaried jobs the closest to their common in 2019-20, which was 86.7 million.
What adopted this has been the festive season and the expectations are that it’s going to all get mirrored within the third quarter GDP numbers. Also, in keeping with the CMIE, the current improve in vaccination and drop in infections are causes to stay optimistic. The similar components may additionally assist employment in some others sectors to enhance. But, quoting its managing director and CEO Mahesh Vyas, reminds “beyond these low hanging fruits any further increase in employment would need investments into creation of new capacities.”
Rituparna Chakraborty, co-founder and govt vp, Teamlease Services, says, “if you compare quarter on quarter then there is a definite improvement in the hiring momentum across segments. Obviously, there are some segments which are doing better than the others but the good thing about the current situation is that there is no sector that is not thinking about reinitiating hiring.”
What is essential, she says, is that the hiring momentum has been choosing up. “India has never had a track record of bridging the gap between those who need employment and have employment. So, it is not as if in the past everyone who wanted a job got the job or got the job they wanted. We have to therefore focus on incremental progress and the ground that is being covered every month.”
But then, Biswajit Dhar, professor of economics on the Jawaharlal Nehru University (JNU) says a lot depends upon having the ability to maintain development and “sustaining growth hinges on the demand recovery which in turn is today dependent on the improvement in the labour market conditions. Secondly, given the input costs that are increasing and there is a relatively high inflation and given that typically inflation sucks out demand from the market, the conditions do seem more adverse than conducive for high growth.”
Shrinking Informal sector
Those who consider within the no-looking again and a journehy now to a sustained restoration usually speak of the formalisation of Indian financial system. The SBI Research in its publication ‘Ecowrap’ on November 1, 2021, says the share of casual financial system could have shrunk to not more than 20 per cent from 52 per cent in FY 2018. But some economists do appear to see challenges. Professor Dhar for example, factors out that the not solely does the report not outline “informal economy” however digitisation of the financial system, introduction of Goods and Services Tax (GST) and elevated use of Kisan Credit Card are all at finest steps in direction of lowering the shadow financial system. Professor M S Sriram, school member, Centre for public coverage on the Indian Institute of Management (IIM), Bangalore, in a current column in Financial Express Online, identified that a method of formalisation is forcing current casual sector to enter the formal sector by obligatory registration. The different method is by increasing the big formal sector and by shifting downward & deeper to compete with what was completely casual sector previously. This accelerated formalisation, he says, provides a false sense of fulfilment, not backed by development of pure formalisation.
For the second, all rests on what the following set of information emerges from the federal government on November 30th.