Tighter Economic Time Ahead

Inflation has been high for some time in India. No wonder, that the inflation-manager for the country - the Reserve Bank of India - has also had to revise the interest rates to try to quell inflationary trends.

With global issues like Ukraine-Russia war, and consequent supply chain issues including increasing vegetable oil prices, fuel prices etc will only add further to these monetary pressures. The factors such as a ban on the export of palm oil by Indonesia (they have announced plans to withdraw the ban from next week) and the issues in wheat availability (Ukraine being a major producer), as the causes responsible for the sudden spike in retail inflation.

Inflation is like a headache; there is no point in finding solace that my headache is less severe than someone else’s ! So this OpEd will not even attempt to compare Indian data with its global counterparts. ( just for info : consumer price inflation in April was at 7.79 %. This is much higher than the RBI’s inflation tolerance range of 4-6%).

More importantly, the pandemic-led slowdown in economic activity, and the non-inclusive nature of the economic growth leads to different socio-economic segments impacted differently; whether inflation hurts the poor or rich, is a matter of debate that we can leave to those with academic depth or those who have enough time for such ideological ones.

At the lower end of the socio-economic spectrum, the inflationary issues are felt on daily basis; overall inflation, food inflation, job losses, slower credit availability for lower social segments (non-grants or non-aid programs), livelihood concerns are adding to the worries. If the monsoon season ahead is not normal, it could further increase food prices, and dampen consumer purchase sentiments as well as purchasing power.

Shrinking Jobs and the Shrink

While joblessness data is available, and equally visible are the claims that jobs are being created, the fair questions would be to ask “how many Net-new-jobs are being created ?”.

For example, to say “tech startups have created 2 million jobs in past 5 years in India” leads one to believe that these are 2 million newer jobs. The actual analysis might reveal if those 2 million jobs are replacement-jobs for already employed people !

For those used to making tall claims and statements, here is a simple observation : startups valuations, profitability, employment generation mean different things and hence cannot be used as synonyms !

The worry on overall unemployment-front is the data from the Centre for Monitoring Indian Economy (CMIE); Unemployment rate crossed 7.8% in April 2022. (GoI does not release any of its monthly data on unemployment). Various industry estimates of jobs lost during the pandemic, range between 50 lakhs and 1 crore.

While we celebrate the newly minted Unicorns across Indian startup space, we need to balance those with the practical data around newer jobs being created. In fact, for past few weeks, there have been more media reports around various start startups reducing their headcount ! After all, we cannot afford ‘comfort by convenience’ !

Thanks to the pandemic, the society at large is bit empathetic to the acceptance of the concept of mental health and taking care about it. Anecdotal evidence from counsellors and mental health professionals reveal that more youngsters (especially between 26-35 years) are prone to stress, anxiety and seek help in coping from work pressures or job losses. But who will foot those bills for those who can’t afford to pay for it ?

Pain ahead

Global issues persist and are expected to take next 4-6 quarters for any further respite. We live in a global village and hence cannot be cocooned within our own domestic economy. Higher commodity prices, fuel prices, continuing supply chain obstacles, geo-political constraints & challenges, overall liquidity concerns continue to put pressure on growth potential. The capital markets volatility could be expected to continue for next few months, and this could hurt retail investors in the short term. Probably there might be more interest rate hikes in the near-future.

Many of these are factors outside of any one’s control - let alone the GoI. While the governmental spending in propping up its infrastructure development plans might help in kickstarting the overall sectoral capex cycle, it might also put counter pressure on the domestic debt markets - as GoI & its entities are the largest borrowers there ! The momentum having been generated by the policy structural reforms are expected to continue and hopefully further be scaled up.

A simple request to all the experts - to use data in their full capacity and hence infer only on the basis of relevant applicable analysis. Any loose data interpretation could mislead the public in underestimating the pain ahead. Let us brace for tougher economic times. And if we fare better, it will be to everyone’s joy. Hopefully, it turns out to be ‘the darkest before the dawn’!