Inflation could impede nascent economic recovery

Driven by a rise in rural unemployment which jumped to 7.91% in October from 6.06% in September, overall unemployment rose to 7.75% from 6.86%, CMIE data showed.

Indeed, while much of the organised corporate sector is doing very well, having negotiated the supply disruptions — reflected in the robust tax collections — one is less sure about the state of the rest of the economy.

Rising prices and high input costs could hit demand, slowing the pace of recovery over the next few months. This is worrying for sectors such as two-wheelers where demand is even otherwise subdued.

Indeed the sharp drop in sales of tractors in October raises concerns about the conditions in the rural economy. An analysis by Bank of America reveals the increase in rural wages has been slowing, averaging 2.7% y-o-y in the April-July period compared with a much better rise of 7.4% y-o-y in the same period last year. Also, the deceleration has been steeper for non-agri wages rather than agri-wages.

Driven by a rise in rural unemployment which jumped to 7.91% in October from 6.06% in September, overall unemployment rose to 7.75% from 6.86%, CMIE data showed.

Meanwhile, with favourable base effects fading, the growth in factory output moderated sharply to 3.1% y-o-y in September from 12% y-o-y in August, with manufacturing leading the decline, something of a reality check.

Indeed, while much of the organised corporate sector is doing very well, having negotiated the supply disruptions — reflected in the robust tax collections — one is less sure about the state of the rest of the economy.

The good news is that exports are on a roll; Merchandise exports grew for the 11th consecutive month to $35.65 billion, up 43% y-o-y in October and a good 36% over October,2019. Moreover, non-oil and non-gems and jewellery, accounted for a significant share in imports in both September and October reflecting a pick-up in business activity.

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