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Growth story: Recovery to gain momentum, but jobs, capex still a concern

It’s good news curbs on expenditure have been lifted and that several central government departments can now spend from their allocated budgets starting October.

Hopefully, the recovery process won’t lose steam and the supply-side issues will be sorted out. (File)

The fairly swift recovery following the second wave of the pandemic will likely gain momentum in the festive season ahead. However, even as tax collections exceed expectations and high-frequency indicators show a pick-up, employment numbers remain worrisome. Headline unemployment has fallen in September to just 5.89% but urban joblessness is hovering around 8%; CMIE estimates the net cumulative increase in employment in the past 12 months at just 44, 483. That’s just 0.044 million on a base of 400 million jobs.

Hopefully, the recovery process won’t lose steam and the supply-side issues will be sorted out. While exports are surging, an analysis by HSBC shows it’s high-skill exports —mobile phones, machinery, pharmaceutical products, and IT services — have gained global market share while low-skill and labour-intensive exports — textiles and agriculture — have been weak. Indeed, labour seems to be moving from factories to farms creating surplus in rural areas.

It’s good news curbs on expenditure have been lifted and that several central government departments can now spend from their allocated budgets starting October; the clampdown had limited expenditure for some departments, including commerce, renewable energy, textiles, to just a fifth of the FY22 outlay. One reason or the lower-than-expected GDP growth in Q1FY22 was the small increase in government expenditure, though some of this was attributed to the states. Where government has spent is on capex; the increase in the first four months was almost 15% y-o-y.

The other big concern is the capex cycle: An analysis by Nomura shows that while FY22-23 may see some impact of deferred investments, originally planned during FY21-22, the phasing profile of envisaged capex reveals persisting near-term risks to the private investment outlook.

The aggregate project approvals, in value terms (including all funding sources — banks/FIs, debt, equity), fell 57% in FY21 versus a steady improvement over FY18-20, albeit on a lower base. The aggregate number of projects which had declined in FY20, saw a further fall in FY21. To be sure investments are fairly strong in sectors such as e-commerce which also create large numbers of jobs, both white-collar and blue-collar ones. The drop in daily infections and accelerated vaccination should encourage the public to move out of their homes and return to their workplaces and also visit public places. That should give the services sector a boost.

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