📰 GDP growth slows to a 11-year low of 4.2%, Q4 slumps to 3.1%
Agriculture, govt. spending help redeem January-March economic performance
•Economic growth slowed to a 11-year low of 4.2% in 2019-20, according to provisional estimates released by the National Statistical Office on Friday.
•The final quarter of the fiscal year, the January-March period, saw the expansion in the Gross Domestic Product (GDP) slump to 3.1%, reflecting the impact of the first week of the nationwide COVID-19 lockdown, which began on March 25.
•Fourth-quarter growth, while the slowest in 44 quarters, however, was still faster than the 2.2% pace predicted by most economists and ratings analysts.
•“Agriculture and government expenditure have been the saviours,” said Devendra Pant, chief economist at the Fitch Group’s India Ratings.
•Agricultural output and the mining sector picked up steam in the fourth quarter, growing at rates of 5.9% and 5.2% respectively, even while manufacturing contracted further, with output shrinking by 1.4%. Public administration, defence and other services grew at 10.1%.
•Although the budget estimate for GDP growth in 2019-2020 had been pegged at 8.5%, the NSO’s previous estimates had pushed the projection down to 5%. On Friday, the NSO also revised downward its estimates for the first three quarters, and pegged its growth estimate for the full year at 4.2%. GDP expanded by 6.1% in 2018-19.
Demand weakening
•“The most disturbing news is that the three components of demand have fallen — consumption demand has slowed, while investments and exports are both in negative territory,” said D.K. Srivastava, chief policy advisor for Ernst and Young India and a member of the Advisory Council to the 15th Finance Commission.
•He also expressed concern about the data from the Controller General of Accounts (CGA) showing that the Centre’s fiscal position worsened. “CGA’s data indicates that the Centre’s gross tax revenues have contracted by 3.4% in 2019-20. This is unprecedented. Fiscal deficit has increased to 4.6% of GDP, well above the revised estimate of 3.8%,” he added.
•“Please note that this has all happened in the year prior to COVID,” remarked Dr. Srivastava. “In the five years before the 2008 crisis, we maintained an 8% GDP growth, so the capacity to endure and recover was stronger. Now we are faced with a weaker economy and much weaker public finances and fiscal capacity.”
State is the first to devise such a work plan for returned workers, says CM
•Madhya Pradesh Chief Minister Shivraj Singh Chouhan has announced the launch of the ‘Rozgar Setu’ scheme, saying it would help secure employment for skilled workers who have returned.
•“The State is the first to devise such a work plan. We are surveying skilled workers who were employed at industries elsewhere, but have now returned,” said Mr. Chouhan. “We are identifying the skills they possess.”
•Stating that the attempt was to provide work to the maximum number of returned skilled workers, he said, “After such workers requiring employment are identified, the government will contact factory, workshop owners and contractors overseeing infrastructure projects such as road and bridge construction.”
•He added, “We will bring our skilled brothers and sisters on a platform and connect them with those needing them. The State government will act as a setu [bridge] between workers and employers so that both are benefited.”
•This would fulfil the manpower requirement of industries as well as provide employment to workers during the COVID-19 pandemic, he explained. “A survey of such workers was launched on May 27,” he said.
•Moreover, Mr. Chouhan hailed the Centre’s ‘Swamitva yojana’ under which rural areas would be surveyed to help prepare land records.
Land ownership records
•“The rural population will be given land ownership records as proof of their right over plots of land. This scheme is like a gift for them,” he added.
•In current financial year, the scheme will cover 10,553 revenue villages of 10 districts, such as Morena, Sheopur and Bhopal, in the first phase. The budgeted expenditure in realising the scheme is Rs. 97.97 crore in three years.
📰 How will consumption shape up post Covid?
With consumers confined indoors and worried about the future, health and ‘homebody’ products may be chosen over indulgences
•Now that there’s a fair bit of agreement that India’s GDP will shrink this fiscal, the debate has switched to the shape of the subsequent recovery. Will the recovery be V-shaped or will it be a U-shaped bathtub with slippery sides, to quote former IMF economist Simon Johnson?
•This will depend overwhelmingly on just one thing — how soon the Indian consumer can be expected to loosen her purse strings. Private consumption, pitching in with 57 per cent of India’s GDP, has also been its most hardy component, rebounding quickly after shocks such as the global financial crisis and demonetisation. But the Covid crisis is materially different from previous crises owing to its twin assault on consumer sentiment, inflicting not just income losses, but also the primal fear of whether one will survive.
Job and income prospects
•While the dearth of official employment data makes it hard to quantify how Covid has impacted income prospects, CMIE has shared some alarming statistics on the unemployment situation. After surveying a sample of 43,600 households in its Consumer Pyramids Household Survey, it estimated that total employment numbers in India dropped by about 122 million in April after the lockdown on a base of about 404 million.
•The composition of jobs lost suggests that self-employed folks have borne the brunt of job losses, while the salaried were less affected. CMIE estimates that 71 per cent of the 128 million small traders/daily wagers and 26 per cent of the 68 million entrepreneurs lost jobs in April, while 23 per cent of the 86 million salaried folks dropped out.
•While a good proportion of the job losses in the self-employed category may be temporary (trade will resume as the lockdown is eased), there’s no doubt that the pandemic has forced some folks out of employment for good, even as it has reduced pay for the salaried. This suggests that overall consumption pie is likely to shrink post-Covid.
•If income prospects decide the consumer’s ability get back to her usual spending habits, sentiment will decide her willingness to do so. On this count, Deloitte’s ‘State of the Consumer Tracker’ suggests that the pandemic has battered Indian consumer sentiment far more than elsewhere in the world. In the latest instalment of its survey on May 16, Indians topped Deloitte’s Global Anxiety Index, with 33 per cent of them saying they felt more anxious than the previous week. Anxiety levels in other nations, some far worse-hit by Covid, were significantly lower at a negative 33 per cent to plus 17 per cent.
•India also had a high proportion of consumers who worried about making upcoming payments (46 per cent), losing jobs (53 per cent) and were putting off large purchases (63 per cent). Strangely, consumers in the US, which has reported six-figure Covid fatalities, are more sanguine, with only 27 per cent worrying about payments, 37 per cent about job losses and 43 per cent deferring big purchases.
Shape of the revival
•This offers two pointers on the shape of the consumption revival in India.
•One, even if the unemployment situation improves with easing of the lockdown, consumers will be looking for evidence that the Covid menace is behind them, before loosening their purse strings. Here, Deloitte numbers on Japan are eye-opening. Japan’s Anxiety Index, which was neck-and-neck with India in mid-April at 39 per cent, had slumped to minus 5 per cent by May 16, as new cases dwindled and the country lifted emergency measures. This makes the timeline of the revival hard to predict.
•Two, with less of a blow to sentiment, consumers in Bharat may be quicker to recover than those from urban India. Virus hotspots are presently clustered in the metros, with little impact on the hinterland. Agricultural incomes are somewhat insulated from demand pressures, especially after a good monsoon and rabi harvest. Most of the Centre’s direct stimulus measures also target rural rather than urban India (Doubling of MGNREGA outlays, PM-Kisan payouts).
•While rural sentiment may make a quick comeback, incomes are unlikely to. The drying up of repatriated incomes from cities and more folks competing for low-paying farm jobs will likely rein in spending.
•Right, if we have to brace for a U-shaped recovery with more Scrooge-ish consumers, what are the likely changes in spending behaviour? Here are a few, based mainly on anecdotal evidence:
Health, hygiene and nutrition
•With consumers confined to their homes and worried about their future, the basics such as nutrition, health and hygiene products are taking priority over more discretionary buys, and this trend may last post-Covid. FMCG companies from Hindustan Unilever to Dabur have, in their recent quarterly commentaries, highlighted resilient sales of food and home-care products while indulgences such as ice creams and grooming products have taken a knock. While a 3-6x surge in categories such as hand sanitizers since March is no surprise, an interesting corollary is the jump in the offtake of perceived wellness and immunity-boosting products such as Chyawanprash and honey, malted drinks such as Horlicks and Boost, oats and nutritional supplements. The shift from eating out to home cooking seems to have sparked demand for ready-to-cook packaged meals, kitchen staples and sauces. With FMCG-makers rolling out new products in these segments, they clearly expect the shift to last beyond Covid.
•Making room for these spends may entail cutbacks elsewhere. Deloitte studies say that since April, India have consistently featured a high proportion of consumers looking to increase spends on non-discretionary items such as groceries, household goods, healthcare while slashing them on travel, restaurants, home décor, apparel and alcohol.
•As Covid recedes, bruised consumer sentiment may mend enough to permit smaller indulgences such as ordering in, visiting salons, buying grooming products or restocking lingerie (thanks to the ‘lipstick effect’ — lipstick sales are said to go up after economic shocks because women want to treat themselves). But big-ticket purchases of consumer durables, automobiles or homes may take much longer to come back, not just due to the consumers’ frugal mood, but also debt aversion. Where consumers perceive an urgent need to make a big purchase for safety considerations, such as personal transport, they may downtrade to limit outlays — opting for two-wheelers instead of cars or hatchbacks instead of SUVs. They may also prefer to reuse and refurbish, gravitating towards refurbishing their vehicles and homes or buying pre-owned cars and electronics.
Homebody economy
•As Covid was wreaking havoc in China, market researcher Nielsen noted the emerging ‘homebody economy’ where more folks preferred to shop, study, work and entertain themselves at home. This resulted in a surge for health products (air purifiers, fitness bands) and home entertainment (home theatres, gaming equipment), even as folks were more than willing to upgrade to 5G phones and bigger data plans.
•April data on Internet usage in India certainly indicates that Internet bills have proved a notable exception to ongoing spending cuts, with Airtel noting strong demand for new broadband connections. Home Internet, mobile phones, entertainment and cable TV are also among the few discretionary items in the Deloitte study, where Indians have vowed to increase spends despite Covid.
•It is also clear that the ‘couch potato’ lifestyle has appealed to many Indians, which will render them willing to shop online even for unconventional categories such as alcohol, footwear and electronics.
•In the US, a version of Nielsen’s homebody economy is leading to a surge in sales of eclectic kitchen appliances, from electric pasta-makers to bread and soda-makers. In India, this may augur well for sales of pressure cookers, cookware, roti-makers, wet grinders, microwaves etc, apart from home-cleaning equipment.
•Overall, the shape of India’s consumption revival will depend not just on how quickly consumers regain their mojo, but also on how nimbly consumer firms adapt to these behavioural shifts.
📰 Anchoring ties with Canberra the virtual way
The India-Australia summit next week is not directed only by the turbulent geopolitics of the region
•In August 1950, one of Australia’s most celebrated jurists, Sir Owen Dixon (who sought to mediate a settlement on Kashmir) wrote to his daughter, Anne, in Melbourne that Delhi was “a place I hope and trust that I shall never again see.” Nearly 70 years later, as the Prime Ministers of India and Australia, Narendra Modi and Scott Morrison, prepare for next week’s virtual summit (June 4), it is not because of any such reservation about India’s capital. Today, New Delhi ranks extremely high on Australia’s diplomatic radar; the new High Commissioner Barry O’Farrell’s appointment is reflective of how far we have moved from Sir Owen’s time. A former Premier of New South Wales and a celebrated public figure, Mr. O’Farrell has already made his presence felt in India through the increasingly ubiquitous world of webinars in his colourful Indian waistcoats.
•Almost all of Australia’s recent Prime Ministers, including Julia Gillard, Tony Abbott and Malcolm Turnbull have visited India. Mr. Morrison’s visit to India, in January, was postponed because of the devastating bushfires in Australia, and now because of the COVID-19 pandemic. When Mr. Modi travelled to Australia in 2014, 28 years after Prime Minister Rajiv Gandhi’s visit, in 1986, he electrified the country with his presence, including business leaders from the country in a panel discussion.
•It is tempting to view the virtual summit only in the context of the turbulent geopolitics of the region. In reality, New Delhi’s relations with Canberra have acquired such spread and depth today that even without the undeniable belligerence of an increasingly inscrutable China, the summit would still have had salience and similar gravitas.
Relations with much potential
•The idea of the Australia-India relationship has well and truly arrived; and while Australia’s population is roughly the same as the National Capital Region, the potential for a shared partnership extends well beyond Mr. Modi and Mr. Morrison trying to deconstruct the inscrutable mind of China’s supreme leader, Xi Jinping, or the manner in which the World Health Organization has acted amid the spread of the pandemic.
•Virtual summits are no longer a novelty. Mr. Modi convened a multilateral summit to bring South Asia together to face the pandemic, and he spoke online with G-20 leaders on similar issues. But India’s first bilateral summit is with Australia; and it is no longer surprising. The convergence of interests and values has been patently obvious; but the time has also come to translate that potential into reality.
•The two countries have sought to reconstruct their increasingly turbulent regional geography into the Indo-Pacific and while grudgingly in the past, and often in fits and starts, seen the Quad (with Japan and the United States) as the most potent instrument to promote cooperation; not surprisingly, causing apprehensions in Beijing.
•It is expected that the ‘Mutual Logistics Support Agreement’ will be signed during the summit that should enhance defence cooperation and ease the conduct of large-scale joint military exercises. Last April, Australia and India conducted AUSINDEX, their largest bilateral naval exercise, and there are further developments on the anvil, including Australia’s permanent inclusion in the Malabar exercise with Japan. In addition, it may be prudent too for New Delhi and Canberra to elevate the ‘two plus two’ format for talks from the Secretary level to the level of Foreign and Defence Ministers.
•But beyond the realpolitik of strategy, is the managing of cooperation in areas that matter to the lives of the people of the two nations: health, food and education.
•Mr. Morrison has emerged as a statesman (during the COVID-19 pandemic) by bringing in the national opposition and reaching out to state leaders in the most effective and efficient display of cooperative federalism. So much so that the Australian writer Richard Flanagan suggested, in The New York Times (May 18,2020), that polarising ideologies in Australia were killed by the coronavirus given the united national response.
Pandemic control lessons
•Australia is one of the few countries that has managed to combat COVID-19 so far through “controlled adaptation” by which the coronavirus has been suppressed to very low levels. Two of the leaders of this great Australia-wide effort are Indian-born scientists. Shitij Kapur, of the University of Melbourne, led a community of academics to produce a pathbreaking report, “Roadmap to recovery”, while S.S. Vasan is leading efforts to develop a vaccine in a Commonwealth Scientific and Industrial Research Organisation (CSIRO) facility in a dangerous pathogens facility in Geelong, near Melbourne. There is much that the two Prime Ministers can share on this front.
•In terms of health and safe food as well the supply chains that facilitate their delivery, there are important lessons to be learnt. One of Australia’s richest businessman, Anthony Pratt of Pratt Industries, and first patron of the Australia-India Leadership Dialogue, recently described the promise of DTC-CPG (direct to consumer; consumer packaged goods) which could transform global supply chains. Here too there is much room for collaboration and new thinking.
Higher education
•The recovery of Australia’s universities, most of which are publicly funded and many rank among the top in the world, is still in question, but they are proving to be resilient and pioneers in distance and online learning. Australian universities could well open earlier than most and emerge as a safer destination for quality education than their European or Ivy league counterparts.
•Till a few weeks ago, the prospect of teaching online a course on Contemporary India to Australian Students from the University of Melbourne seemed daunting to this writer. But with slides of Ambedkar, Gandhi and even snippets from the movies of Satyajit Ray, the enormous potential of online learning became obvious; the students were excited intellectually by both the robustness of Indian democracy, and the diversity of its experience as a federation. Although the course was on India, the enormous potential of young Australians and Indians working and building fresh order in a turbulent world became starkly obvious. The virtual summit, in this sense, could not have been better timed.
