Very slow recovery in household incomes

by Mahesh Vyas

Household incomes have been hit hard by the lockdown. More than half the households in India have suffered a fall in their incomes during the lockdown compared to a year ago and a very large proportion has seen no increase. Incomes were impacted almost instantly with the sudden imposition of the lockdown in late March this year. Now, India is nearly eight months into the lockdown with several relaxations in movement of goods and delivery of services. Many fast frequency indicators have been reporting a smart recovery in the economy since the first few months. However, the recovery in household incomes is very slow.

CMIE’s Consumer Pyramids Household Survey asks a direct and simple question to households regarding their income. The question is whether compared to a year ago, the responding household has experienced an improvement in income, deterioration in income or, no change in income. Till March 2020, around 30-35 per cent households would report an improvement in their incomes compared to a year ago and about 10-15 per cent would report deterioration. The rest, which a little over half would report no change. This itself was an eloquent statement of the apparently skewed distribution of growth. Nevertheless, about a third seemed to be attesting to India’s growth story till February 2020.

In March 2020, when the lockdown started to playout initially in parts and then across the nation towards the end, the proportion of households stating that their incomes were higher than a year ago dropped to 27.4 per cent. In April, this proportion fell dramatically to 9.6 per cent. This was the beginning of a fall in the proportion of people who were doing better than a year ago to low single digits by July when this proportion fell to 3.6 per cent.

The recovery began in July 2020. But, the recovery has been very slow. The proportion of households stating that their income was better than it was a year ago rose to 4.3 per cent in August, then 4.9 per cent in September and 5.4 per cent in October. These proportions are a far cry from the 30-35 per cent before the lockdown hit the fortunes of households.

The unemployment rate has returned to its earlier levels. The absolute employment levels are close to their pre-lockdown levels. Jobs are back but, income is not. Apparently, people who have retained jobs have experienced pay cuts or those who lost their jobs have moved to lower paying jobs.

This distress is best seen in the rise in proportion of households that stated that their incomes were worse than they were a year ago. This proportion was around 9-10 per cent for most of ten months preceding the lockdown. It rose to 13.7 per cent in March 2020 and then to 49.3 per cent in April. From May through September 2020, well over half the households reported a fall in income compared to a year ago. This ratio was 49.8 per cent in October 2020.

October 2020 shows a very small improvement in household incomes compared to the situation in September 2020. The proportion of households whose income is better than a year ago has gone up from 4.9 per cent to 5.4 per cent. The proportion of households whose income has worsened in a similar comparison has declined from 56.1 per cent to 49.8 per cent. But, the proportion of those households that have seen no improvement or deterioration in their income has risen from 39 per cent to 44.7 per cent. No improvement is as good as a deterioration since these comparisons are in nominal value terms and consumer price inflation has risen by nearly 7 per cent during this period.

Data for the first two weeks of November indicate that the situation may not be improving any further during this month. The proportion of households that reported an improvement in income declined to 4.2 per cent and 5.1 per cent in the first and second week, respectively. This does not compare well with the 5.4 per cent record of October.

The proportion of households reporting a worsening of income has declined well from the 49.8 per cent reported in October to 47.9 per cent in the first week and 47.5 per cent in the second week of November 2020. Consequently, the proportion of households reporting no change in income compared to a year ago has risen from 44.7 per cent in October to 47.9 per cent in the first week and 47.4 per cent in the second week of November.

This very slow and somewhat hesitant improvement in household incomes is in stark contrast to the rapid and robust improvement in other economic indicators. The IIP reported a positive y-o-y growth in September 2020. Electricity generation, coal production, railway freight traffic, two-wheeler sales, and cars sales have recovered to their pre-lockdown levels. GST collections have risen and corporate sector profits have soared. However, this recovery has not translated into improved incomes for households.

This fall in real income for the vast majority of households could create a demand constraint for a consolidation of the growth momentum indicated by other indicators.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.1 -0.7
Consumer Sentiments Index
Base September-December 2015
58.2 0.0
Consumer Expectations Index
Base September-December 2015
60.1 0.0
Current Economic Conditions Index
Base September-December 2015
55.2 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 20 Dec 20 Mar 21 Jun 21
New projects 2.53 1.42 2.13 2.74
Completed projects 0.77 0.86 1.15 0.71
Stalled projects 0.08 0.31 0.26 0.32
Revived projects 0.27 0.15 0.22 0.12
Implementation stalled projects 0.09 0.20 0.32 0.25
Updated on: 26 Sep 2021 3:28PM
Quarterly Financials of Listed Companies
(% change) Sep 20 Dec 20 Mar 21 Jun 21
All listed Companies
 Income -6.3 1.6 14.8 42.0
 Expenses -10.3 0.1 7.3 42.2
 Net profit 47.9 58.3 325.4 124.7
 PAT margin (%) 8.4 8.4 8.9 9.0
 Count of Cos. 4,430 4,450 4,355 4,324
Non-financial Companies
 Income -10.5 0.2 17.5 60.8
 Expenses -14.2 -0.8 10.4 62.9
 Net profit 31.8 54.7 232.8 178.2
 PAT margin (%) 8.1 8.8 9.0 8.4
 Net fixed assets 5.9 2.3
 Current assets 0.8 4.6
 Current liabilities -1.8 0.8
 Borrowings 8.5 -4.2
 Reserves & surplus 3.7 12.0
 Count of Cos. 3,282 3,304 3,251 3,239
Numbers are net of P&E
Updated on: 26 Sep 2021 3:28PM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.3 0.2 -1.4
 Expenses 13.6 0.2 -3.7
 Net profit 15.2 -10.4 39.8
 PAT margin (%) 2.1 2.1 7.7
 Assets 9.8 8.5 13.4
 Net worth 8.5 4.4 15.1
 RONW (%) 3.8 3.5 9.5
 Count of Cos. 31,749 30,612 4,154
Non-financial Companies
 Income 14.0 -1.7 -3.9
 Expenses 14.2 -1.4 -5.6
 Net profit 21.4 -21.1 25.5
 PAT margin (%) 2.9 2.4 7.3
 Net fixed assets 5.6 10.0 3.6
 Net worth 7.9 2.1 13.3
 RONW (%) 6.4 4.9 10.7
 Debt / Equity (times) 1.0 1.1 0.6
 Interest cover (times) 2.3 2.0 4.3
 Net working capital cycle (days) 74 81 64
 Count of Cos. 25,424 24,480 3,033
Numbers are net of P&E
Updated on: 20 Sep 2021 8:43AM