India’s economic recovery so far has been uneven, despite being strong. The organized corporate sector has made a comeback, as reflected in strong tax collections, as the informal sector has been stuck in a rut.
Sustainable and inclusive growth seems some time away, given rising inflation, high interest rates and weak purchasing power of low-income households, which could impact demand in the coming months.
In fact, the conservative 7-7.5 per cent consensus sees a pullback in GDP growth projections for 2022-23.
The latest job figures are worrying. For the first time in 17 weeks, unemployment hit 8.53 per cent in the week to December 12, due to a 10.09 per cent rise in urban unemployment and 7.42 per cent in rural unemployment, CMIE data showed. An additional constraint may be new omicron Insufficient speed of wave and vaccination.
Not surprisingly, capital expenditure (capex) is not coming back in a big way. Of course, some steel makers are adding capacity and ordering equipment in other areas, but overall there has been no real explosion.
To be sure, the expenditure by the e-commerce and startup space, while not in plant and machinery, is huge and this ecosystem is creating employment opportunities. In contrast, the corporate sector is not increasing the workforce; CARE’s analysis shows that the workforce fell by 1.3 per cent in FY11, a growth of 2.2 per cent in FY11 and 4.1 per cent in FY19.
Importantly, the data does not cover outsourced employees, which are becoming a larger component of the workforce. India Inc. is leading the economic recovery.
The share of PAT in GDP for listed companies has increased from a two-decade low of 1.8 per cent in FY15 to 3.7 per cent of GDP in 1HFY22. Corporate sales have risen on the back of a favorable base and inflation. Crucially, the interest coverage ratio has seen a huge improvement. Much of the improvement has come from increased efficiency, value and productivity, and better cost management.
However, growth in factory output has been relatively slow. In October, it grew by 3.2 percent annually compared to September’s 3.3 percent. Although there was a gradual pick-up, it was uneven.
While some of this can be attributed to supply-side constraints, the demand has clearly subsided despite the festive season being in place. Supply side bottlenecks from key sectors like automobiles should go up with easing; Inflation alone could be a major drawback in the coming months as the burden of higher raw material costs is passed on to consumers.
Exports continue to perform well and could help increase capacity utilization, which currently stands at less than 70 per cent. Fe
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