Do it yourself

 The macro economic data released last week produced further evidence of the Indian economy struggling with stagflationary conditions; notwithstanding the denial by various authorities. Inflation impact widening and deepening The consumer price inflation date for the month of April 2022 was a negative surprise. The consumer prices escalated at a rate of 7.8% (yoy) during the month. The higher inflation was, to a large extent, a consequence of imported inflation which added almost 2% to the headline inflation number. Though, the inflation due to rise in domestic prices at 6.4% was also no comfort. Higher commodity prices (especially energy) have clearly started to show second and third round impact as the inflation is now becoming wider and deeper. The core inflation and services inflation were also higher on a yoy basis, as producers and service providers have started to aggressively pass on the higher costs. With worsening current account (and depreciating INR); continuing s...

For the past two years, I have been highlighting to the readers of this blog that almost two third of the Indian population is experiencing conditions that qualify to be termed stagflationary. Their incomes have been stagnant or declining in many cases, while their cost of living has risen materially. The expenses on the critical services like education, healthcare, telecom, transportation and essential goods like food, energy, housing etc. have increased materially in the past 2 years. Besides, the proportion of aspirational (non-essential) spending in the overall consumption basket has also been increasing consistently. On the other hand, the household incomes have not kept pace with the rise in the cost of living. Wages for unskilled and semi-skilled labor have hardly changed. The employment opportunities for them have also diminished. The women participation in the labor force has reduced, pressuring the average household income. The wages for the highly skilled workers have seen...

Stagflation is an economic environment with rapidly rising prices, a weak labor market, and low GDP growth. The recent corporate commentary throws light on some important economic trends. These trends, which might have been developing for few years, are becoming more established on ground now. The most discussed trend since demonetization (November 2016) and GST (July 2017) has been the transfer of market share from smaller unorganized businesses to the large organized businesses. Import substitution (Make in India) has been another trend that has gained significant currency in past 4-5 years. This has manifested most prominently in the capacity building in chemical and renewable energy space. These trends have obviously helped the larger publically traded companies to grow bigger and more profitable. The buoyancy in stock market, a representation of these larger companies, is aptly reflecting these trends. One trend that has escaped the popular narrative and closer scrutiny is s...

  As per the latest survey conducted by RBI, the Consumer Confidence in India remained at an all-time low level in September with the general economic situation worsening during the month. This data read with the dismal IIP growth (-8%) and elevated consumer inflation (7.34% highest since January 2020) indicates that (i) the recovery from lockdown is slower and belies the enthusiasm shown by some of the analysts and economists; and (ii) we shall struggle to reach the pre lockdown level of economic activity for at least 2 more quarters and any improvement in the growth trajectory normalized for lockdown impact may still be far away. Remember, the economic growth in India was declining much before the pandemic forced a complete lockdown in March 2020. The key highlights of the Consumer Confidence Survey (September 2020) are as follows: ·          As per the survey, the consumer confidence (current situation) continued to slip for third succ...

Every day the stock markets in India (and other parts of the world also) are cheering the "positive data" and rising towards the previous highs. In my view, it may be a case of total cognitive dissonance. The market participants are selectively choosing the data that gives them hope of better days ahead; completely ignoring plethora of evidence indicating that economy is tottering on a long and winding road entering the dark woods with only scattered sunlight and no end in sight. Many experts have highlighted this case of dissonance between equity markets and economy, questioning optimism of investors and corporate managements. For example— The incumbent RBI governor Shaktikanta Das recently highlighted that "There is so much liquidity in the system, in the global economy, that's why the stock market is very buoyant and it is definitely disconnected with the real economy. There will definitely be a correction but we can't say when." The minutes of the ...

Two data points released on Wednesday has again brought the specter of stagflation in India to the fore. The rise in food prices and telecom tariffs pushed the retail inflation in January 2020 to 7.59%, the highest level seen since May 2014. At the same time the industrial production recorded a decline of 0.3% in December 2019. I agree with the viewpoint that at macro level we may not be facing any threat of stagflation in near term. I also believe that (a) the headline CPI number may be close to peaking and may ease considerably post summer, as estimated by the monetary policy committee (MPC) of RBI; and (b) the headline growth number may be close to bottom and we may see a gradual recovery from 2HFY21 onwards. Notwithstanding the macro viewpoint, it is pertinent to keep in mind that a large segment of the population may already be experiencing stagflationary conditions. There is no denying that the employment conditions have worsened in past one decade a...