economic growth prospects: government must provide more subsidies as the tide of growth will not lift all boats: DK Joshi, Crisil
The Reserve Bank of India is also talking about improving consumer sentiment and demand and this is something the Ministry of Finance dispatch also talks about. They say that as there is trust in people, consumer sentiment will return and this will in turn stimulate private investment. Do you think you are already seeing signs of this?
I think the ministry is correct that the year will end on a high note as Covid has peaked and after each wave we have seen the economy recover. So the same type of broad based recovery will occur. By March, we’ll see that happen.
The question is how long will it last. As we enter the next financial year, the risks associated with Covid are diminishing somewhat, but other risks are on the horizon. Geopolitical risk, crude, the Federal Reserve changing policy stance – all of this will impact us as well. As for consumer sentiment, it is recovering but still well below pre-pandemic levels, as is private consumption.
Private consumption for ’21-22 is just over 2% lower than it was in 2019-20. Uncertainties remain and we know that the MSME segment has been hit hard and will take time to recover. These are the labour-intensive sectors. Recovery will happen, but there are obstacles in the way, depending on how serious they are. So there is a road to recovery ahead of us, but we can’t be very sure of that at the moment.
As restrictions are lifted and business winds down, people will automatically want to go out more, spend more. Will this be enough as far as the consumer situation in India is concerned or will consumption need more political impetus?
Once is for sure, because contact-based services are still around 8-9% below pre-pandemic levels. So if Covid is really in an endemic phase, then those services will rebound but it won’t be a sustained surge. It will be a one-time push because the base is so low and the growth there will look very strong. Beyond that, the global economy needs to recover.
So the message from these two bulletins that the RBI and the Ministry of Finance have put out seems to be that things are going to get better and a big reason for that is the kind of political push that is coming due to the actions we have taken. It is the production incentive systems or an increase in investment expenditure that they plan to pass.
There is a dichotomy in the economy and it will take time to fix it. We could get a one-time boost in consumption due to the resumption of contact services and people who are employed in these services, who are currently underemployed, especially in urban areas, will get a pay rise. This will certainly support consumption, but there are other factors as well.
It also depends on the magnitude of the increase in the price of rough and its passing on to the end consumer, as this will also impact people’s disposable income. People in the highest income brackets have benefited from the pandemic in terms of income. But others have lost. The recovery in consumption is a reflection of this.
Thus, the demand for low-cost items is low. The demand for high priced items such as automobiles, SUVs is quite high and this is not going to correct itself and unless the bulk of consumer demand increases we will have to wait for a push from the government. My view is that everything the government has done in the budget to support investment is going to happen, but it will have to increase support through NREGA. They will also have to give additional grants during the year, because the growth tide will not lift all the boats. And unless all the boats rise, the broad consumer base will not happen.