Growth? Or, skewed growth?

by Mahesh Vyas

Several commentators on the economy have been proclaiming recently that the problems arising out of demonetisation and poor implementation of GST are now behind us and the economy is poised for a recovery. This is interesting because it is an acceptance that the two were indeed bad shocks for the economy.

A recovery seems apparent in the index of industrial production rising smartly in the past three months, in order book position improving and in corporate earnings showing a good uptick. But, employment data does not show any recovery from those shocks.

The CMIE-BSE unemployment measures have shown the severe strain the economy was subjected to following demonetisation. This was a shock that led to job losses and loss in the hope of getting jobs. A research paper "Using fast frequency household survey data to estimate the impact of demonetisation on employment" estimated that 12.6 million jobs were lost during the first two months after demonetisation. The labour force shrunk by 19 million during this period. This shrinking of the labour force is the shrinking of hopes of getting jobs.

We still don’t see a recovery in the labour force. Labour participation rate during January-March 2018 was 43.4 per cent compared to 46.8 per cent in January-March 2016.

RBI surveys demonstrate the same depressing story on the jobs front post demonetisation. And, it does not support the view that the economy is recovering.

The survey, published soon after the monetary policy last week, said that 30 per cent of respondents believed that the employment level had improved compared to a year ago. In comparison, a much larger, 43 per cent believed that employment levels had worsened over the past one year.

The gap between those who said that conditions had worsened and those who said that they had improved was 13 percentage points. A year ago, this gap was much smaller at 7 per cent. Two years ago in March 2016 before demonetisation, it was negligible. Evidently, at least in so far as perceptions regarding employment are concerned, the situation is getting from bad to worse.

In 2013, 32 per cent of the respondents believed that the employment condition was worse than it was a year ago. This proportion declined to 28 per cent in 2014, possibly reflecting hopes people had on Modi’s promises. The euphoria on the jobs situation evaporated rather quickly with the pessimism rising to 31 per cent in 2015. The aspirational youngsters were short on patience.

In 2016, a much higher 35 per cent of the respondents believed that the jobs situation had worsened compared to a year ago. In 2017, a much larger 41 per cent respondents believed that the jobs situation had deteriorated. According to the RBI surveys, the jobs situation was the worst during November 2017.

What do people think of the future?

Less than half the population believes the jobs situation will improve in the next one year. In 2014, 61 per cent of the respondents believed the jobs situation would improve in the next one year. By 2017, this ratio was down to 51 per cent. And, in the last survey of March 2018, less than 50 per cent believed that the conditions would improve in a year.

The statistics drives a point hard that the jobs situation in the country worsened after demonetisation and has not improved since. Further, it is not expected to improve anytime soon.

Perceptions on income are much worse.

Less than a quarter of the respondents believe their current incomes are higher than they were a year ago. A year ago, this ratio was 28 per cent; two years ago it was 31 per cent and three years ago it was 35 per cent. Six years ago in March 2012, more than half of the respondents believed that their income was higher than it was a year ago.

In March 2012, 61 per cent of the respondents believed that their incomes would increase in a year. Now, only 47 per cent believe so. Nearly 12 per cent believe that incomes will actually fall.

The results of the RBI surveys are not surprising. When jobs are scarce and employment prospects remain low for a long time, wages are bound to get depressed. This is what the RBI survey seems to suggest.

It’s worth thinking hard - how is it possible that only a quarter of the people feel their incomes are increasing when government statistics tell us that the economy is growing at 7 per cent per annum in real terms? If the economy is indeed doing very well and if there is a recovery, it is perhaps touching only a quarter of the people.

First Published in Business Standard Link

Unemployment Rate
Per cent
6.3 +0.1
Consumer Sentiments Index
Base September-December 2015
93.5 +0.8
Consumer Expectations Index
Base September-December 2015
93.9 +0.6
Current Economic Conditions Index
Base September-December 2015
92.8 +1.0
Quarterly CapeEx Aggregates
(Rs.trillion) Jun 17 Sep 17 Dec 17 Mar 18
New projects 2.32 1.37 1.18 2.15
Completed projects 0.87 1.21 1.02 1.06
Stalled projects 2.67 0.69 0.93 3.34
Revived projects 0.30 0.34 0.23 0.14
Implementation stalled projects 0.73 0.72 0.58 1.05
Updated on: 23 Apr 2018 12:20PM
Quarterly Financials of Listed Companies
(% change) Jun 17 Sep 17 Dec 17 Mar 18
All listed Companies
 Income 9.6 7.9 11.9 12.3
 Expenses 9.9 9.0 12.9 11.5
 Net profit -19.9 -18.1 -13.9 14.1
 PAT margin (%) 5.3 5.5 4.9 19.5
 Count of Cos. 4,481 4,468 4,430 48
Non-financial Companies
 Income 10.2 8.2 13.2 8.5
 Expenses 10.5 8.2 12.3 7.7
 Net profit -25.1 -6.0 12.7 9.7
 PAT margin (%) 5.2 6.2 6.4 19.8
 Net fixed assets 9.2 0.7
 Current assets 78.7 7.3
 Current liabilities 11.0 21.6
 Borrowings 10.4 -5.3
 Reserves & surplus 5.2 -2.1
 Count of Cos. 3,458 3,441 3,426 34
Numbers are net of P&E
Updated on: 23 Apr 2018 12:20PM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.5 1.5 5.1 1.6
 Expenses 5.6 1.7 5.1 0.7
 Net profit 0.0 -10.3 23.7 9.2
 PAT margin (%) 3.1 2.8 3.6 8.3
 Assets 9.5 10.0 6.9 3.3
 Net worth 8.5 11.4 6.0 2.8
 RONW (%) 5.8 4.9 5.9 12.7
 Count of Cos. 25,647 23,668 20,755 19
Non-financial Companies
 Income 4.7 0.6 4.7 1.5
 Expenses 4.9 0.0 5.2 0.6
 Net profit -8.6 18.4 18.0 10.7
 PAT margin (%) 2.0 2.5 3.1 7.4
 Net fixed assets 13.3 17.3 5.4 4.4
 Net worth 6.9 12.0 4.4 2.9
 RONW (%) 4.6 5.1 6.0 11.5
 Debt / Equity (times) 1.1 1.1 1.0 0.2
 Interest cover (times) 1.9 1.9 2.1 11.8
 Net working capital cycle (days) 66 65 62 38
 Count of Cos. 20,897 19,807 17,287 17
Numbers are net of P&E
Updated on: 18 Apr 2018 11:50AM

Time series available from 1990 onwards