View from India: Going forward with the economy

As a slew of policy initiatives and reforms are pegged to propel the economy forward, India is projected to clock double-digit growth in the current financial year.

As per media reports, the fiscal deficit is estimated at 6.8 per cent of the gross domestic product (GDP) for the current financial year ending on 31 March 2022. Official data from the government indicates that India's GDP growth stood at 8.4 per cent in Q2 of 2021-22; this could point to the fact that the economy has gained momentum and even surpassed the pre-Covid level.

The GDP numbers look encouraging and many factors could be responsible for it. Perhaps it could be attributed to the large community of citizens (117 crore, or 1.17 billion) who have been vaccinated. Infrastructure investments may also have contributed: the government has rolled out the Production-Linked Incentive (PLI) scheme to boost the manufacturing industry. PLI schemes are also a means of promoting the government's Make in India vision. To that effect, the manufacturing sector grew 5.5 per cent in the second quarter, while the construction industry grew 7.5 per cent. Further, sectors like agriculture continued to grow at 4.5 per cent, while mining and quarrying have grown at 15.4 per cent.

Krishnamurthy Subramanian, Chief Economic Adviser (CEA), has conveyed to the press that the government-led structural reforms will ensure a growth of around 7 per cent over the next few years and keep a check on inflation as issues concerning supply have been ironed out.

Certain segments have shown signs of recovery and are picking up. For instance, India’s consumer durables sector is set to clock a robust revenue growth of 20 per cent this financial year, after a flattish run last year. This will be driven by electrical appliances makers (35 per cent of sector revenues), which are expected to grow twice as fast as white goods makers (65 per cent of sector revenues). Consumer electrical makers have hiked prices by 8-10 per cent this fiscal, much more than the average 3-4 per cent by white goods makers. Operating profitability of white goods makers is seen moderating at 6-7 per cent, marking an impact of up to 200 basis points (bps), compared with 10-11 per cent for consumer electrical makers, which would be an impact of 50-100bps.

“Despite the dent in profitability, traditional strengths of low leverage (gearing of 0.2 times), asset-light business models, and healthy cash accrual will ensure credit profiles remain stable this fiscal,” said Sushant Sarode, associate director at CRISIL Ratings. "Over the medium term, capital spending may increase given the government’s PLI scheme for white goods components (Rs6,238 crore [Rs62.38bn] spread over fiscals 2022-2029), aimed at increasing indigenisation of imported components. We believe the capital spend is likely to happen in a phased manner, which would ensure credit profiles remain stable."

Along with capital spending, the pandemic-driven lull of last year seems to have given way to some optimism. This belief stems from the fact that home-grown talent is attracting international organisations. A case in point is the placement process at the Indian Institute of Technology (IIT). Press reports reveal that IIT Roorkee has bagged the highest international cost-to-company (CTC) of Rs2.15 crore (Rs21.5m) during the placement process. Meanwhile, students of IIT Madras have received 176 job offers from leading companies such as Microsoft, Texas Instruments and Boston Consulting Group, among others.

Job placements align with mobility services, where personal or shared mobility is preferred to public transport. Taxi aggregators Uber and Ola had laid off a sizeable number of the employees last year; this year they have changed tracks and the pace is accelerated. Uber has partnered with WhatsApp for customers to hop into the Uber through a message to a WhatsApp chatbot. The service, which has begun in Lucknow, will be mapped along other places. The bookings, currently in English, will eventually include a vernacular flavour. The partnership with Uber can also be viewed as WhatsApp’s efforts to expand its user base in the country. Meanwhile, Ola has gone on record stating that its gross merchandise value has crossed pre-pandemic levels.

All of this is fine, but where we need to exercise caution is the emergence of the Omicron variant of the coronavirus. Whether we are we going back to the same refrain as that of 2020, remains to be seen. Just as the lid of apprehension was being lifted to an extent, one is reminded of the looming presence of the Omicron. Let's hope it doesn’t put a brake on the economy.

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