In this inscrutable year, on the eve of the crucial Budget 2021, ET Magazine has tried to take stock of something pertinent, something the government should keep in mind: what do people want? ET Magazine conducted a three tier poll — of 100 CEOs, 27 economists and 3,476 middle-class Indians (readers of www. economictimes.com) — over a fortnight in January to better understand the year gone by, where India is today and do some crystal-gazing into the future. What do they want from this budget? How do they look at this long pandemic period? How do they see the government’s handling of crucial issues and what more do they expect? The survey format allowed for anonymity, so that respondents could speak their mind.
The results are revealing. Expectedly, CEOs, economists and citizens differ in their responses. But there is near-unanimity on two important aspects. One, most of them agree that the government has done a good job of handling the pandemic crisis and the vaccine rollout. This should offer some comfort to the Narendra Modi sarkar as globally, governments, from the US to Sweden, have made many missteps amid high rates of Covid-19 infection and mortality.
Two, there is near-alignment on what the three sections are worried about the most — jobs. Many believe India is staring at a job-income crisis, which is far bigger than the pandemic-triggered health crisis. Both experts and aam aadmi concur on this. “Travel and tourism industry has been devastated. There is huge job and income loss,” says Deep Kalra, cofounder of MakeMyTrip, about the industry that employs over 80 million people.
“Casualty is very high in the sector, which is dominated by small, unorganised players. We have cried ourselves hoarse but there is no response (from the government). We are disillusioned.” The report card for the government varies, depending on who is grading. Economists have been the harshest critics, with just 4% assessing the government’s performance as excellent, while 32% each give it good, average and bad ratings.
CEOs have graded the government a tad better — 8% rate it excellent, 44% good, 37% average and just 11% bad. Among the middle class, 12% give it an excellent grade, 34% good, 35% average and 19% bad. “The government has managed well in a tough year. We must give credit where it is due,” says Rashesh Shah, chairman, Edelweiss Group. Agrees Patu Keswani of Lemon Tree Hotels: “I am happy with the way the government has responded. Remember, this is from someone whose sector has been badly affected.”
Interestingly, a big chunk of all three categories of respondents — 72% CEOs, 76% economists and 55% of middle-class Indians — wants the budget to boost spending and investment. And how have things been at home? Amid the pandemic, work from home (WFH) has led to longer work hours for most people and heightened loneliness for some. The crisis has also forced the majority to reset life expectations even as they tackle headwinds in their professional lives.
Budget & the Economy
India has been facing headwinds for quite some time. Much before Covid, experts were worrying about slowing economic growth, muted sentiments, poor investment and falling jobs. All of these worsened over the past year. “Even before the pandemic, the government was fiscally stressed. After that, it didn’t have much fiscal space,” says Sunil Kumar Sinha, principal economist, India Ratings.
Last year, when rich countries loosened their purse strings to roll out generous stimulus programmes, India too unveiled a headline-grabbing plan of Rs 30 lakh crore across multiple trances. It outlined many measures, including AtmaNirbhar Bharat programmes and performance-linked incentives, boost for domestic manufacturing, improved credit access for enterprises, moratorium on interest payments and thrust on affordable housing and MNREGA. But in both intent and reality, it fell far short of everyone’s expectations. Partly, this tight-fistedness has been attributed to the government’s concerns on rising fiscal deficit.
“The government has held back public expenditure,” says former chief statistician and economist Pronab Sen. Dharmakirti Joshi, chief economist, CRISIL India, says, “An interesting feature of India’s sharp economic recovery has been that it happened without too much government support.” Among the economists who took part in the ET Magazine poll, only 5% say the government handled the economy well.
Jahangir Aziz, global head EM, Economic & Commodities Research, JP Morgan, says not only did the Indian government overreact with the world’s most stringent lockdown but it did not follow it up with an adequate fiscal stimulus to aid economic recovery. “The question to ask is — by showing fiscal rectitude in a year when India’s GDP growth rate was the worst in its recorded history, has the government impaired India’s medium-term economic growth?” asks Aziz.
On the eve of the budget, another question to ask is what should its focus be. Madan Sabnavis, chief economist, CARE Ratings, says the government should just keep things grounded in reality. “Make it a credible budget. Don’t overstate income like non-tax revenue and disinvestment proceeds,” he says.
Economists who took part in the survey are divided on what should be the thrust of the budget: while 35% say the FM should maintain fiscal discipline, 30% urge Sitharaman to borrow more.
Long Year of the Virus
Through the mist, a few things are becoming clearer: the disparity is becoming deeper. As Joshi of CRISIL India says, “It (the economic recovery) has been a story of two halves.” On one side, green shoots are emerging. The IMF has revised India’s 2021-22 GDP growth upwards. Experts say it will be the world’s fastest growing economy next year.
The demand for credit is rising. The Sensex is scaling new peaks. This is understandable as the earnings season in the festive quarter of October-December looks good. Havells India saw its net profits and revenue rise 75% and 40% respectively in the same period over the previous year. It is the same for UltraTech Cement (net profit has zoomed by 123%), Asian Paints (net profit up 62%) and Bajaj Auto (net profit growing at a historic high of 23% to Rs 1,556 crore). Companies like Maruti Suzuki and Sobha Developers have also logged record sales in the festive quarter.
Leading AC and refrigerator companies are ramping up capacity by 50-100% on the back of good demand forecast, the China factor and the government’s AtmaNirbhar push. An analysis by ET Intelligence Group (ETIG) of Q3 results echoes the mood. For the 238 sample companies, revenue rose by 10.4% and net profit shot up by 151%. YS Guleria, director, sales & marketing, Honda Motorcycle & Scooter India, says they too have focused on improving efficiencies, from production to manpower.
“Never waste a crisis,” says Keswani of Lemon Tree Hotels, whose belt-tightening measures are yielding impressive results. Despite the pandemic challenges, his net EBITDA margin has grown to 32% in October-December. “I expect robust financial growth from 2022,” he says. India Inc’s good results are more profit-led than wage-led growth. Flip the coin — and you see another side. It’s the not-so-cheery world of minions and millions.
Consider the 6.5 crore MSMEs that employ about 12 crore workers, contribute 30% to the GDP and almost half of India’s exports. The world of these traders and businesspeople has been ravaged by the virus. Take the case of Firozabad-based Glass Creations that exports glass vases to the US and Europe and employs 50-odd workers.
“We are ruined, barely able to survive,” says owner Rajinder Gupta. Surprisingly, the problem is not his order book, he says. A surge in input costs, container shortage, difficulty in availing credit and the absence of government support for exporters have all conspired to worsen his woes in this long Covid year. “We have been abandoned. We are operating at 60% capacity. I don’t know for how long this will continue,” says Gupta.
The world of India’s 450 million-plus workers — almost 80% of them in the unorganised sector — lies shattered. In a young country with the world’s second largest workforce, a pandemic-triggered lockdown and an economic recession have kicked off a wave of layoffs and income loss that have blighted lives. Ask Delhi-based house painter Murari Kumar. A school dropout, the 38-year-old daily wager was first hit by demonetisation in 2016.
Now, he is reeling from Covid-triggered economic shock. Once he was busy throughout the month; today he barely gets work half the time. The lockdown has pushed him deep in debt. The father of two is slowly recovering, but financial worries are troubling him. “Three months of rent are overdue. I don’t know how I will pay it back,” he says.
In this layoff season, educated Indians are also hurting. Akshay Prasad (name changed on request), 32, an MBA, used to work with the entertainment company Vakaao. He lives with his retired parents and his wife in a 1BHK apartment in Mumbai. Soon after the lockdown, his salary was cut and in October he was laid off.
“With no savings, high expenses, including an EMI of Rs 16,000, life has been very difficult,” he says. The EMI is for the personal loan he took when his father fell ill. “I even had to sell off gold to arrange some money,” he says. After eight years in the entertainment industry, he is now looking for a job in other sectors. Joblessness is what CEOs, economists and the middle-class flag as the biggest problem of the Indian economy.
The Big Divide
This dichotomous growth is visible at multiple levels. There is the large-vs-small divide — large companies have fared a lot better than MSMEs. The economy contracted by 23.9% in the first quarter and by 7.5% in the second quarter. Meanwhile, according to RBI, profits of non-financial listed firms surged to 35% in the September quarter.
Aziz of JP Morgan says, “We are the most optimistic on the street on India’s growth. Despite that, India’s GDP by March-end 2022 will still be 4-5% lower than India’s pre-pandemic growth. This suggests an average income loss of $200 billion over two years, most of it suffered by MSMEs and households.”
Further, informal and unorganised sector — where 80% of India’s 450 million workers are employed — have been hit disproportionately hard. This is especially so in the services sector — from restaurants to hotels, cab drivers to carpenters.
Most of them have slipped through the cracks, with very little access to government support. Anil Bhardwaj, secretary general, Federation of Indian MSMEs, says that out of the 6.5 crore MSMEs, just 25-30 lakh (mostly in manufacturing) are registered. All the talk about moratorium may mean nothing as “90% of MSMEs have no access to any institutional credit and have not taken loans,” he says. They need focused policy to aid their revival.
There is also the urban-rural divide. In the rural economy, the impact of the pandemic and the lockdown has been less severe. Also, following the migrant crisis, the government pumped in more money into the rural economy while supporting incomes through schemes like MNREGA. “Rural India benefitted structurally a lot more from government schemes,” says Vinayak Chatterjee of Feedback Infra. In contrast, there has been little support for the urban poor who were also hard hit, with the services economy in tatters. CEOs and economists say policy focus should tilt towards supporting the urban poor. “So far government schemes have paid attention to supply-side issues. Now it must shift focus to demand-side challenges,” says Joshi.
The biggest fear among experts is that India’s economic recovery could be K-shaped, which would mean a further sharpening of the divide. The latest Oxfam report, “The Inequality Virus”, reveals that amid the lockdown, as thousands of people went hungry and homeless, the wealth of billionaires increased by 35%. “What is worrisome is that gains in the (current economic) growth are not distributed equally and skewed towards people with higher incomes,” says Joshi.
The overwhelming view that emerges from an analysis of ET Magazine’s pre-budget poll as well as extensive conversations with 20-odd CEOs and economists is that the budget must focus on creating jobs and reviving MSMEs with a strong focus on the urban poor. Giving priority to labour-intensive manufacturing sector, infrastructure and construction with strong backward and forward linkages to the economy is one way to go about it. The government seems to be veering towards that.
“Towards the end of 2020, we saw a thrust on infrastructure sector spending,” says Chatterjee. The buzz is that the government will set up a sovereign-backed development financial institution that will help fund India’s massive infrastructure spend target of Rs 20 lakh crore annually for the next five years.
For now, a fall in daily Covid cases, the vaccine rollout and signs of economic recovery are keeping the spirits high. “But for it to sustain, the government must change gear and focus on demand-side challenges. If they don’t do that, it will be difficult to revive growth and investment,” says Sinha.
India’s millions of workers and MSMEs may lie at the bottom of the pyramid, but they are the backbone of the economy. They deserve urgent attention in this budget.