Much of the recent “we are better than rest of the world” narratives reminds one of our old (non-digital native) upbringing. For when we were growing up, if there was a power cut at home, first instinct was not to light a candle (or hurricane lamp, as we used to call it) at home for our light; it was rather to check on our neighbours’ house if there was power cut for them too! Did it help in bringing power back on? Nope. But it did add a cheer that life was equally dark there.
Well, for those who went their non-masking ways with the prediction that Covid is done and dusted, the infection still seems to be lurking, as we see from the daily infection count increasing. While the pragmatic might say that we need to accept this as a new way of life, those who go through this infection still have to pay the socio-economic costs, and they can be high.
For those who predicted that Russian invasion of Ukraine would be done in few days, the harsh reality of continued war hurts. For it is hurting the global supply chains and rewriting costs of daily living. A simple case in point being continued shortage of semiconductor chips, which delays delivery of anything from our refrigerators to smart watches to computers to cars!
For those who predicted war on inflation would be fought within few weeks, have hopefully woken up to economic reality. That it could mean higher rate of interest and with probable further increases. While for those dependent on savings interest income, the pain will continue as their earnings nett-of-inflation & income tax could be far lesser or even give them negative yield! For businesses, borrowing costs, if that at all, that credit access is available, would be at higher levels.
What do these add up for you and me as individuals - either employed, self-employed or retired?
Economic tightening
The economic slowdown is a reality, as data shows. “The world is looking at a distinct possibility of widespread stagflation. India, however, is at low risk of stagflation, owing to its prudent stabilisation policies," the finance ministry observed in its latest Monthly Economic Review. It also mentions the possibility of weakening of the value of rupee, which could hurt imports, and create wider deficits.
Global supply chains are expected to be in a tizzy for few more quarters. Many developed nations, including the US, are heading for severe inflation, if not stagflation. Why should it bother us? Simply because they are also investors in our capital markets. We have seen Foreign Institutional Investors (FII) exiting our capital markets of late, for their need for that capital. As the market cycle goes, any large-scale exit comes at a cost of someone else replacing the exits happening, and at our forex reserve depleting. Any larger or faster capital market exit could also mean prices tumbling.
Many markets are seeing property prices reversing, thanks to the higher input costs being passed on to the consumer; there are chances that housing sector could see a slowdown in coming quarters.
Bitter pill - Hobson’s choice
The unemployment rate has been worrying. The covid economy started off the job losses & business loss in a larger proportion. We still find it unpalatable to acknowledge pain in the SME & MSME sector, where lack of credit access and delayed payments continue to hurt and haunt. A recent report by the Global Alliance for Mass Entrepreneurship (GAME) and Dun & Bradstreet (D&B) India, observes that ₹10.7 trillion, which is nearly 6 per cent of the Gross Value Added (GVA) of the Indian businesses, is the delayed payments from buyers to MSME suppliers. A known issue that begs a solution, primarily starting with governmental buyers showing the way for prompt payments to MSME sector.
On the other hand, structurally our banking system focuses majorly in serving larger borrowers, unlike many developed economies where stable bond markets exist; which in turn serves the large borrowers, allowing the banks to serve retail and smaller consumers.
We have over 800 million youth who continue to depend on opportunities. They are high on economic aspirations, and look for growth avenues. That’s a challenge that’s more pressing in the medium to long term. How we get them into the fold of real society is critical, rather than seeing them as a mere vote bank. We need a self-reliant and confident young demographic to be our nation’s soft power. Without their hard feelings!
Also we need to hope and pray, for there can be no other human intervention, that we have sufficient monsoon. For that could bring cheer to the economy.
In retail investors’ parlance, it’s time to tighten the belt, cut undue expenses and save like never before. And ensure that you have adequate insurance coverage for health, property, etc. The pain is expected to last for a while.
Economic murmurs & tumble drying
Tumble dryers offer a convenient way of drying bedding, towels and clothes. The clothes tumble in the dryer drum where airflow, along with heat, dries clothes quickly. It is expensive to use as it uses electricity to heat to dry the laundry. But some fabrics like wool, silk, leather can’t handle the heat or high-speed circular movement of a dryer.
Similar are some of the industrial sectors. They will be hurt by the current uncertainty-filled-economy, and their business existence could become unviable.
Will this mean that policies for economic stability will be needed at the cost of short-term growth? To emerge as a better resilient economy, it is going to cost us much. And it won’t be without pain. For we are all inside that tumble dryer currently.
The writer is a corporate advisor and independent markets commentator. His Twitter handle is @ssmumbai
