Indian economy: pandemic recovery is far from over

Indian economy: pandemic recovery is far from over

Job losses continue, gold lending to new highs

A flurry of data from various sources is causing problems for India’s economy as the country struggles to emerge from the deep hole the pandemic has left it in.

On August 31, the Union Finance Ministry tweeted a self-righteous message saying its prediction of a V-shaped, or very rapid, recovery in the Indian economy had come true as a domestic product. gross in the first quarter, ending June 30. 2021, up 20.1 pc compared to the same period last year.

The ministry was quickly joined by dozens of “friendly” media and economists who, as usual, showcase the “dynamic leadership” of Prime Minister Narendra Modi.

But there were also cautious whispers from some who pointed out that GDP growth must be seen in the context that in the same quarter of 2020, GDP had plunged from a record 24.4 pc and that despite the The “rebound” economy was far from recovery and the country’s economy was still considerably smaller than during the pre-pandemic period of 2019, in fact closer to where it had been in 2017, a decline of four full years.

There were other equally worrying data, even in GDP growth. The first concerns public spending and the second private investment. While all governments around the world, without any exceptions, have opened their stock exchanges and continued to support people and businesses in unprecedented ways, the Modi government has taken the opposite position and cut spending. Continuing its ongoing budget cuts, during the first four months of the current fiscal year, State expenditure fell by 39.40 pc compared to the same period last year and stood at over 62%. pc below the level of the corresponding months of 2019.

In addition, the government’s unfounded and desperate hope that private sector investment would spur a sustained economic recovery has also collapsed, as the private sector steadfastly held onto its cash or paid it out to shareholders, despite a tax cut. he received last year, and even now, private sector investment levels are 17 pc below pre-pandemic levels.

Job losses resume

Confirming that the celebrations were not only far too premature but also without any merit, just days later, the Mumbai-based economy monitoring research firm Center for Monitoring of Indian Economy (CMIE) reported that After a month-long hiatus, job losses resumed as more than 1.5 million people in the formal and informal sectors lost their jobs in August, reversing some of the gains made in July, as the unemployment rate was increasing in rural and urban areas of India.

The CMIE said the number of people employed rose from 399.38 million in July to 397.78 million in August, with nearly 1.3 million job losses in rural India alone. This led to an increase in the national unemployment rate from 6.95 pc in July to 8.32 pc last month. Urban unemployment rose by 1.5 pc to 9.78 pc in August. The corresponding rates in April, May and June 2021 were 9.78 pc, 17.73 pc and 10.07 pc respectively.

Rural unemployment in August increased by 1.3 pc to 7.64 pc, mainly driven by poor seeding during the Kharif season due to a delayed monsoon. As a result, 36 million people were actively looking for work in August, up 17 pc from the 30 million people looking for work in July.

The labor market in India has already been tough for a few years now, as private investment has stagnated or dropped consecutively and the government has aggressively sold its own units, resulting in a significant drop in the number of available jobs. There are at least eight states in the country with double-digit unemployment rates.

The CMIE goes on to say that even the jobs that have returned since the pandemic epidemic, which resulted in the loss of nearly 220 million jobs in India at the peak of April 2020, were mainly in low-productivity agricultural work when the monsoon The directed planting season was at its peak. Job creations in July mainly included low-quality informal jobs, and unless the economy recovers, those people absorbed in agricultural work will find it difficult to find alternatives, the CMIE noted.

For jobs to recover and the economy to rebound in a meaningful way, private sector investment must pick up in a meaningful way, economists say. But companies remain far from confident about the sustained demand to invest in capacity additions and the mood at the factory gates remains grim.

The pace of growth in the manufacturing sector remained subdued in August, with demand showing signs of weakness due to uncertainty surrounding the pandemic. HIS Markit, an analytics firm, said the purchasing managers index (PMI) for the manufacturing sector fell to 52.3 in August from 55.3 in July. IHS Markit said that despite the expansion, the overall figure indicated a lower growth rate. Growth has been held back by the pandemic and high price pressures, he said.

Export growth has also lost momentum due to the pandemic, although new orders increased in August compared to July, according to IHS Markit.

He adds that while the 12-month production outlook remained positive, confidence had faded amid concerns over the lasting scars of the pandemic and the negative impact of rising costs on corporate finances alongside a lack of pricing power. Input prices have risen sharply due to strong competition for scarce raw materials and transportation issues. He added that uncertainty over growth prospects, spare capacity and efforts to contain spending led to a hiring freeze in August.

The poor pay the price for the pandemic

In the absence of government or employer support, the burden of survival ultimately fell on the large number of poor households in India and, paradoxically, is their consumption, although significantly lower than in the pre- pandemic, which resists the Indian economy and prevent it from sinking into a prolonged recession or even depression.

But without government funds, high inflation and job losses, Indian households have been forced to turn to lenders, both informal and formal. This is reflected in another recent report which indicates that personal loans, particularly gold loans and credit card loans, saw a 12-month increase through July 2021. The personal credit jump is in stark contrast with little or no growth in bank credit to businesses, reinforcing the economic distress of the poor, who have been left to fend for themselves to deal with the consequences of lockdowns, job losses and wage cuts.

RBI Says Total Personal Loans Increased By More Than 10 Pc To Reach INR 28.58 Trillion In July

Gold, the asset of last resort for the poor, has been used to raise loans, as reports indicate that the stock of gold loans increased by 77.4 pc in one year until July 2021 The country’s largest lender, the State Bank of India (SBI) says it experienced 340 pc growth in gold lending during the year through June 2021. While the official or formal sector has of data on loans, a large majority of poor households turn to their local lenders for their needs and this data has not been compiled but enough empirical evidence to suggest that it would be similar if not much higher than loans from the country. formal sector.

Likewise, outstanding credit cards, mainly the preferred lender of lower and middle class families, increased by 10 pc in the year ending July 31, 2021, reaching INR 1.11 trillion. . The Reserve Bank of India reports that total personal loans increased by more than 10 pc to reach INR 28.58 trillion in July. He added that credit subscriptions by industry and services – that is to say, businesses – increased by a paltry 1 and 2.7 pc respectively. These two sectors represent more than 50 pc of the total outstanding loan amounting to INR 108,200 billion.

Unfortunately, there does not appear to be visibility at the end of the tunnel for most households. Bankers say the trend is expected to continue as new demand for gold increased from April and nearly one in three loan requests is for a gold loan, highlighting that low income and shortage guarantees have forced many people to opt for it. .