Positivity returns in the auto sector:
The pandemic had forced the auto sector to take salary cuts to survive the dark times. But, with sales rebounding, the industry is again restoring the old salary structures.
Hyundai Motors is set to start its performance appraisal process in February. Bajaj Auto had taken no pay cut during the lockdown. But, promotions and accompanying increments were put on hold. Now, the company has announced to restore its routine bonus and increment cycle.
In the Tyre industry, JK Tyre has restored the salaries of all its employees. Ceat has increased its employee cost by 12% in the December quarter.
The salary hike is a very strong indicator of a positive mood. It signifies that the industry has turned a corner. And, it is in a much comfortable position when compared to the first half of FY21.
Praise for India's recovery :
IMF's Chief Economist Gita Gopinath has praised the speed of India's economic recovery.
India has entered 2021 with better prospects and it has restored activity faster than many economies. She also believes that the growth is returning. With that, India's fiscal deficit will also come down over the next few years.
The praise from IMF's chief economist is a huge vote of approval for the government's efforts. Having said that, a large battle still lies ahead.
As she pointed, the government needs to focus on speeding up disinvestment. It also needs to improve the GST model as well as sharpen the insolvency laws. The stressed assets are rising at an alarming rate in the Indian banking sector. The government must develop a strategy to contain it at the earliest.
An unusual proposal:
The government is considering a proposal to raise the consumer price index (CPI)-based inflation target. The government could raise the inflation target to 5% (+ or - 2%) in the current budget. Currently, this RBI is assigned a target to maintain inflation at 4% (+ or -2%). The change, if announced, could be implemented from April 1 onwards.
Currently, the sole focus of the government is on reviving the growth. A revised inflation target could be significant in the context. With current inflation target set at 4% (+ or -2%), the RBI finds itself in no position to extend the policy support. The higher inflation band would provide much-needed flexibility to the central bank to introduce further monetary stimulus.
We believe enough downsides are there to this proposal in an equal proportion. Increasing the target band could result in a permanent rise in inflation. Consumers will be the prime victims in that case.
Besides that, inflation has cooled off to 4.59% in December. It is expected to moderate further in the coming months. It will again open up enough room for RBI to unleash fresh monetary measures if the need arises.
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