Growth could stay weak as demand remains subdued

An added obstacle could be the new Omicron wave and the inadequate pace of vaccinations.

India’s economic recovery so far while reasonably strong has been uneven. The organised corporate sector has bounced back as reflected in the strong tax collections even as the informal sector seems to be stuck in a rut. Sustainable and inclusive growth seems some time away given rising inflation, higher interest rates and weak purchasing power of lower-income households could hurt demand in the months ahead. Indeed, even the conservative 7-7.5% consensus GDP growth projections for 2022-23 are looking a stretch.

Recent job data is worrying. Joblessness hit 8.53% in the week to December 12, for the first time in 17 weeks owing to a spike in urban unemployment to 10.09% and also elevated rural unemployment at 7.42%, data from the CMIE showed. An added obstacle could be the new Omicron wave and the inadequate pace of vaccinations.

Not surprisingly, capex isn’t coming back in a big way. Capacity is no doubt being added by some steelmakers and equipment is being ordered in other sectors too but on the whole there’s no real burst. To be sure the spends by the e-commerce and start-up space, while not in plant and machinery, are huge and this ecosystem is creating job opportunities. In contrast, the corporate sector isn’t adding to workforce; an analysis by CARE shows that the headcount fell 1.3% in FY21 on the back of a 2.2% increase in FY21 and 4.1% in FY19. Importantly, the data doesn’t cover outsourced staff, which is becoming a sizeable component of the workforce. India Inc is leading the economic recovery. The share of PAT to GDP, for listed companies, has risen from the two-decade low of 1.8% in FY20 to 3.7% of GDP in 1HFY22. Corporate sales have soared, helped by a favourable base and inflation. Critically, interest coverage ratio has seen a vast improvement. Much of the improvement has come from efficiencies, price and productivity increases and better cost management.

However, the growth in factory output has been relatively slow. In October, it grew 3.2% y-o-y compared with September’s 3.3% y-o-y. Although there was a sequential pick-up, it was uneven. While some of this could be attributed to supply-side bottlenecks, demand has clearly been subdued despite it being the festive season. With supply-side bottlenecks easing out of key sectors such as automobiles should go up; only inflation could be a big dampener in the months ahead as high raw material costs get passed on the consumers. Exports continue to have a good run and could help push up capacity utilisation, currently below 70%.

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