Do it yourself

No panic in the boardroom

Unlike the previous two rate cycles that started with a rather aggressive 50bps rate cut – first October 2008 post the Lehman collapse and second March 2020 post Covid-19 break out – this cut is apparently not a panic cut.

The Fed chairman sounded confident about growth and employment level. He emphasized that the central bank is not in a hurry to ease policy, as he sees no likelihood of an elevated downturn in the economy. He mentioned, “There’s nothing in the SEP (Summary of Economic Projections) that suggests the committee is in a rush to get this done.”

The Chairman categorically advised the markets to not take this 50bps cut as “new pace”. He said, “we’re going to go carefully meeting by meeting, and make our decisions as we go”.

The decision to cut was however not unanimous. In a rare dissent, one member (Michelle Bowman) voted for a 25bps. This could be seen as yet another sign of “no panic” in the Fed board room.

Committed to price stability without pain in labor market

Announcing a victory over inflation, Mr. Powell announced, “The U.S. economy is in good shape. It is growing at a solid pace. Inflation is coming down.”

As per the latest economic data release, the US GDP expanded at 3% annual rate in 2Q2024 with 4.2% unemployment rate (considered near full employment), and inflation at 2.2% in August 2024.

Outlining the latest policy objectives, he commented, “We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with disinflation”. Guiding the markets, he emphasized that investors should take the Fed’s 50bps rate cut as a sign of its “strong commitment” toward achieving that goal.

Neutral rate seen close to 3%

The FOMC members see cuts of 25bps each in November and December FOMC meetings; 100bps cut in 2025 and 25bps cut in 2026 – implying that the latest easing cycle may end with the Fed rate range of 2.75-3.00%.

The Fed Chairman also mentioned in the post FOMC press meet that the neutral rate is likely significantly higher than it was on the previous occasions.

Markets ended lower

Markets – equity, bonds and commodities – ended the day with marginal cuts post the Fed announcement; while the USD was marginally stronger. This could be an outcome of either (i) sell on news; or (ii) traders’ disbelief in what Fed says about the strength of the economy.

What now

In my view, this aggressive 50bps cut is more of a correction than an aberration. Perhaps the Fed realized that they are running slightly behind the curve and hence tried to catch up. I do not see it as a panic move and would not like to indulge in “there is more to it than what meets the eye” debate.

Unlike 2008, there is no corporate balance sheet crisis, no risk of global markets freezing, and unlike 2020 there is no shutdown necessitating fiscal and monetary profligacy. It is a normal rate cycle change in response to a normalizing economic cycle. Therefore, expecting a market reaction like 2008 (sharply down) or 2020 (sharply higher) may not be appropriate.

I feel the US markets will adjust to the new policy trajectory in a couple of weeks and move accordingly. The lower rates shall help arrest the decline in the US housing markets and consumer spending. The bond yields may come down and the hedge trade in gold may begin to unwind. The corporate discretionary spend may also normalize as the cost of borrowing eases. This could be a relief for the Indian IT services companies.

For India, I am not sure if the RBI will rush to cut in October meeting, but would not rule it out completely. Financials and commodities are two sectors that need to be watched closely, in my view.

In the next couple of months, the markets in India will be driven by the 2QFY25 earnings. Any disappointment could lead to a decent correction in the markets. For now, I do not see a need to make any change in my investment strategy. (More on this next week)

The major risk to the markets comes from geopolitics now. The situation in the Middle East is worsening by the hour. NATO and CRIK (China, Russia, Iran and North Korea) alliances are hardening their positions, both on trade and war, making the situation explosive. (More on this next week)

I have been observing men making these deliveries closely for the past five years. I have noticed a gradual but definite shift taking place in the profile of the deliveryman visiting my house.

In the earlier days, these were usually young semi-skilled boys, who were doing this part-time job while acquiring some skill that would get them a regular job. For most of them this was their first or second job. None of them would like it to be their regular job in the next 2-3 years. They were working 6-8 hours a day.

Now-a-days, however, it is common to find middle aged, educated, skilled men making deliveries. Many of these people have experience of working in the organized sectors. I have even met some delivery men who have worked as accounting clerks, mechanics, salesmen etc. They lost their jobs due to downsizing or closure of businesses they were working for. In some cases, they had to take a break due to health reasons but could not find a job while recovery.

A Large proportion of the ‘deliverymen’ seems to have accepted this as their regular occupation. They work 10-14 hours a day. Only last week my domestic help asked “if I know some ‘contractor’ who provides deliverymen to various platforms?” She wants her 18yr old son to join the occupation. I am scared to think whether this occupation is already becoming aspirational for several poor households. Add the “carless drivers” of the app-based taxis to this universe of ‘deliverymen’ and you would find the problem to be much larger.

This trend of hiring “part-time” or “contract workers” is not limited to unskilled jobs like making deliveries. It is becoming more commonplace in skilled and even high-skilled white-collar jobs; and even public administrative jobs. Many public departments are preferring to hire contract workers in place of regular employees. Cost optimization and flexibility are the two primary reasons offered for this practice.

The latest Periodic Labor Force Survey (PLFS), released on 16 August 2024 by the National Statistical office (NSO), only 47.4% of the workforce in India comprises regular wage/salaried employees. The rest were classified as own account workers, self-employed, helper in household enterprise and casual labour.

Reportedly, in the US also, “full-time employment dropped by 1 million workers in August on a year-over year basis, marking the 7th consecutive monthly decline. Since the June 2023 peak, full-time job count in the US has fallen by a whopping 1.5 million. Meanwhile, part-time employment rose by 1 million year-over-year in August. Additionally, the number of permanent job losers jumped by 324,000 year-over-year, to 2.5 million, the highest since November 2021. This was the 16th straight month of part-time job gains, the longest streak since the 2008 Financial Crisis.”

In my discussions with my several contacts, I noticed that almost everyone has taken note of this trend. However, the acceptance for the fact that we are fast becoming a ‘non-salaried” economy is still very low. Even at the policymaker level recognition for the changing paradigm is far below the desired level.

In my view, there needs to be an urgent and accelerated acceptance of this trend and preparation to deal with the consequences. While it may be already little late for the policymakers, the investors and businesses might still have 5-7 years to adapt to the new paradigm.

Some of the consequences of the emerging employment status paradigm could be as follows:

·         The demand for rented accommodation may rise much faster than the owned accommodation, as the contract or part time workers refuse to commit to a place or city.

·         The tendency to marry and have a stable family life may weaken. The population growth rates may fall much faster than presently anticipated. The businesses created around children (healthcare, drinks, toys, books, education, stationary, clothes, footwear etc.) may witness marked slowdown.

·         The demand for public services, like transport, health and education may rise faster as affordability of workers diminishes.

·         The credit worthiness of part-time workers may be lower; and the tendency to default may witness a rise. The household savings may decline further. The business models and lending practices of banks and NBFCs may need a substantial change.

·         Workers’ mobility may rise. This may cause frequent law & order problems as conflicts between the local and outside workers increase.

·         The working age of Indian youth may reduce drastically. The ‘deliverymen’ - working 10-14 hours a day; 365 days a year; carrying heavy bags on their shoulders; - will wear out much sooner than a normal worker. They will retire hurt and sick in their 40s rather than 60s, having no skill, savings, family or social security. Managing these retired force could be a much tougher task than solving the issue of pension for the retired government employees and soldiers.

I will be grateful to receive any feedback from readers relating to the policy endeavor made in this regards, besides according legal recognition to the gig workers in The Code on Social Security, 2020, (CSS2020) and recruiting temporary workers in the armed forces (Agniveer scheme)

But this is not the point here. For the past many decades, I have been used to referring to the modern consumer credit ecosystem as ‘plastic money’. My wallet and table drawer are full with a variety of plastic cards- credit, loyalty, identity, membership, insurance, travel, etc. I considered myself privileged with so much “plastic” in my possession. Suddenly, one phone call from a 28-year-old bank executive shattered my ‘illusion’, and apprised me how underprivileged I am for being part of ‘plastic’ economy, when the elites have already moved to the stronger ‘metal’ one.

This episode also made me accept that plastic money is now becoming an integral part of the lower middle class Indian consumers, just like their peers in the western developed economies. Owning a credit card, H&M loyalty card, Metro Travel Card, Driving License, health insurance card, etc., is no longer a privilege.

To recover from this dis-illusionment experience, I tried to assess what other transitions in my life have gone mostly unnoticed. I discovered many things. Let me share some of the transitions in my investment portfolio which went largely unnoticed.

1.    My consumer sector allocation is now dominated by modern retail, telecom and ecommerce, instead of traditional FMCG.

2.    My industrial allocation is now predominantly deployed in the engineering design, manufacturing technology solutions and contract manufacturing companies.

3.    Fintech and non-lending businesses form a substantial part of the allocation to the financial sector. Even for the traditional financial businesses (Banks and NBFCs), a strong technology platform to deliver services has been the primary selection criteria for the tradition.

4.    My pharma portfolio is now dominated by healthcare solution providers (hospitals, health insurance, devices), contract research, API and domestic formulations. The traditional generic players and exporters are negligible.

5.    Value added product portfolio is my primary criteria for investing in commodities like cement, steel, industrial metals, agriculture produce & dairy etc.

6.    Import substitution gets substantially more importance in the selection process, as compared to the export potential.

7.    EPC companies (Infra builders) dominate the construction sector as compared to the asset owners.

8.    Top 100 companies are part of my passive portfolio only. The news of some company being included in MSCI indices (or exclusion) does not excite me any longer. I am spending more time discovering the companies that have the potential to migrate from the SME segment to the main board and from the smallcap to the midcap segment.

The graph depicts that the number of Chinese companies in the Fortune Global 500 list have grown from 10 in 2000 to 121 in 2020, a 12.1x rise in two decades. Three Chinese companies now figure in the list of top 10 global companies. The new 111 Chinese entrants in the coveted list mostly replaced the companies from the US (55) and Japan (54). Besides the US and Japan, companies from the major European economies (Britain, Germany and France) have also fallen in their global rankings.

The top 10 ranked global companies are an interesting mix. The list is topped by two retailers (Walmart, 1, USA; Amazon, 2, USA). Besides, it comprises – one utility (State Grid, 3, China); three petrochemical giants (Saudi Aramco, 4, Saudi Arab; Sinopec Group, 5, China; China National Petroleum, 6, China) one consumer electronics (Apple, 7, USA), two healthcare solution providers (UnitedHealth Group, 8, USA; CVS Health, 10, USA) and one investment company (Berkshire Hathway, 9, USA).

Insofar as India is concerned, only 9 companies figure in this list of top 500 global companies. Out of these nine, five are public sector enterprises (LIC, IOC, SBI, ONGC and BPCL) and four are private companies (RIL, Tata Motors, HDFC Bank and Rajesh Exports). RIL (ranked 86), is the top-ranked Indian company in the list of 500.

Since this data is published every year, and I have been observing this evolution of Chinese companies for more than a decade, prima facie I did not find anything exciting in this graph. On a second thought, however, a forceful inquisition perplexed me.

I wondered if the Indian economy has risen to find a place in the top five economies of the world, and is well on the course to enter into the top 3 club in the next few years, why not many Indian corporations have scaled up to the global scale!

I find it worth examining if it is a massive opportunity for the Indian investors or a potent threat.

It could be an opportunity, if we find that there are several Indian companies that are in a position to displace the legacy European and Japanese companies from their leadership position. These large sized companies could offer a material upside to the investors, as these transcend to become global corporations, exponentially growing their revenue and profitability.

It may also be a threat, if we find that the Indian companies are failing to match the global standards of innovation, scale, competitiveness and financial strength. In this case, many of the large companies might be at a risk of losing their respective domestic position as well to the global corporation, as the Indian economy is opened up further to sustain its global standing.

The amount of global foreign direct investment (FDI) has been on decline since peaking at US$2.05trn in 2015. In fact, a percentage of world GDP, FDI peaked at 4% of global GDP in the year 2000 and has been on decline since then. In the year 2023, global FDI fell to US$1.3trn or 1.27% of global GDP.

As per a recent Moody’s report, “Global foreign direct investment flows have shrunk in recent years. The COVID-19 pandemic, supply-chain chaos, surging inflation, and tighter funding conditions have taken a toll on global FDI. Investment flows are also being reshaped by economic fragmentation, trade and geopolitical tensions, industrial policies, and supply-chain diversification. But many of the ups and downs in FDI in recent years are due to tighter regulations to thwart the usage of tax havens. These have curbed the flow of investment through conduit economies, especially in Europe. While retreating inflation and easing monetary policy settings might offer some relief, economic fragmentation will hinder the smooth flow of FDI. Climate change will increasingly shape FDI flows in longer term.”

UNCTAD report emphasizes that “Tight financing conditions in 2023 led to a 26% downturn in international project finance, which is crucial for infrastructure investment in areas such as power and renewable energy. As a result, investment in sectors linked to the Sustainable Development Goals (SDGs) fell by more than 10%. The report highlights that agrifood systems and water and sanitation registered fewer internationally financed projects in 2023 than in 2015, when the goals were adopted.”

FDI in China and India shrinking, despite India’s manufacturing push

The Moody’s report highlights that “The drop in FDI flows to developing economies was largely because of shrinking investment in China and India. The world’s second-largest recipient of FDI, China, saw a downturn in 2023. Inflows turned negative in the third quarter as withdrawals and downsizing outpaced new investments. More recent data showed a fresh decline in the second quarter of 2024. FDI into India has also seen better days, falling in recent years despite the country’s push into manufacturing and notable investments from tech giants such as Apple Inc. On the bright side, FDI into Southeast Asia has held at a high level.”

Most renewable energy funds allocated to the developed economies

Although renewable energy investments have nearly tripled since the adoption of the Paris Agreement in 2015, most of the money has gone to developed countries. While developing countries need about $1.7 trillion each year in renewable energy investments – including for power grids, transmission lines and storage – they only attracted about $544 billion in 2022.

The report shows that more than 30 developing countries still haven’t registered a large international investment project in renewables.

And in most of the 10 developing countries with the highest levels of international investment in renewable energy, investment in renewables represents between one tenth and one third of total FDI.

OECD rules impacted FDI

Changes in taxes and regulatory requirements appear to have materially impacted the FDI flows – amount as well as direction. Moody’s report mentions that OECD members “have strengthened regulations to make it harder for companies to locate profits in zero-tax jurisdictions. Also, a revised corporate tax rule in the U.S. in 2018reduced the incentive for U.S. multinationals to reinvest earnings and hold intangible assets abroad, leading to a significant drop in outward FDI that year. These efforts, later bolstered by laws to establish a global minimum tax, have dampened FDI flows to and from low-tax jurisdictions in Europe.

This appears to be macro trend. Nonetheless, it may have implications for the investment portfolios of several investors, especially those investors who are overweight in capital intensive businesses relying on foreign capital for growth. If the decline in FDI flows sustains the current trend, we may see downward revision in growth projections and hence valuation multiples. It is therefore advisable to watch this trend closely over the next couple of years.

Sustainability has emerged as one of the major investment themes in the post Covid-19 period. Businesses engaged in the activities related to renewable energy and electric mobility have received substantial massive investments and have seen massive rise in capacity building. Nonetheless, the astronomical rise in the stock prices of companies engaged in basic manufacturing like solar PV cells, EV battery modules, electric scooters, etc., may not be sustainable.

This reminds me of my favorite instance from the Hindu mythology. I have narrated this instance many times before. Let me do it again.

“Once the forces of good (gods) and evil (demons) had a protracted battle. The battle lasted so long that both the groups exhausted all their resources and valor. Completely tired, wounded, frustrated and exhausted, they approached the Savior, Lord Vishnu. The Savior advised them to go and explore the great ocean (Sagar Manthan) to find new resources and vigor to make a fresh beginning.

Following the advice, both the groups went to the great ocean and explored it extensively. During their exploration they discovered a huge amount of wealth and resources that included the Amruta (nectar of the gods) that would immortalize its consumer and Vish (venom) that would destroy whoever consumes it.

Realizing that if demons get the access to Amruta and other resources found during the exploration, it would seriously jeopardize the interest of gods, Lord Vishnu tricked demons and appropriated the entire nectar for consumption of gods.

Lord Vishnu also requested Mahadev, Lord Shiva, to absorb the venom so that it does not harm anyone and the balance of the universe is maintained. Obliging, Lord Shiva drank the entire venom and preserved it in his throat.

Post this, gods became more powerful. But whenever they deviated from the path of common good, they were overpowered by demons and dethroned. Each time only after a great deal of repentance they would be rehabilitated with the help of Lord Vishnu, Lord Shiva or the Mother Supreme.

Over the years I have realized that it is not just a mythological story, emphasizing the victory of good over evil, to be heard during religious ceremonies and forgotten immediately thereafter. It is much more. This applies to all aspects of life, even economics.

The ocean exploration mission (Sagar Manthan) is basically a collaborative research effort to find solution to a problem that afflicts all alike, e.g., a prolonged war like World War, a pandemic like plague, smallpox, HIV AIDS or COVID-19, or a major economic crisis like great depression. The experts collaborate to find solutions like vaccines, hygiene products, UNO, Nuclear deterrents, globalized markets, etc. to mitigate the losses and prevent recurrence of such problems.

In modern economic parlance, ocean exploration is akin to the period of recessions followed by irrational exuberance, fiscal and monetary profligacy, and household extravagance.

When all the participants get tired, frustrated and exhausted from a significant economic weakness, collaborative efforts are needed to stimulate the economic activity. At this time all the stakeholders muster courage, and supported by the 'authority', they do things they would not do in normal times. Invariably, this effort involves excessive and seemingly irrational borrowing, investing and spending. Capacities are built to the scale which are unfathomable during normal times. Usually this drives the asset prices to levels that cannot be explained or justified by conventional methods. These unexplained phenomena are generally described as “bubble” in market parlance. The nectar or the good that emerges from these bubbles is shared by all. However, the venom is consumed only by the financial investors who invariably end up poorer after these bubbles burst.

The financial assets' prices correct upon bursting of bubbles but the productive capacities built during the bubble phase stay for long, supporting and promoting growth and development.

If you are not able to correlate to what I am saying - imagine would India be a ITeS superpower without Y2K or technology bubble during late 1990s! Had we built so many houses, roads, malls, power plants, cement plants etc. during the decade of 2000s but for a subprime credit bubble! Would capital be so easily and cheaply available to Indian entrepreneurs without a QE bubble in the west! The capacities built during these bubbles shall continue to support India's growth and development for long, even though the financial investors lost significant fortunes during 2001-02 and 2008-09 burst periods. Most of the entrepreneurs who built large capacities (power plants, roads, ports, airports, mines, steel plants, housing, etc.) ended up bankrupt or financially weaker, but the capacities they created are benefiting the society.

The global shut down due to Covid-19 in 2020 necessitated the latest round of Sagar Manthan (Ocean Exploration). Sustainability became the key theme of development, attracting massive investment, disregarding the sustainability of the investment itself. A bubble-like situation is developing in the sector.

Like the earlier instances, the renewable energy and electric mobility capacities built in this decade will benefit society for long. However, the financial investors who are investing in the companies building these capacities at valuations driven mostly by ‘hope’ and ‘euphoria’ might suffer for long. Mahadev of economy (financial investors) must prepare to absorb vemon, once again.

Most medium sized farmers had a good standing crop of paddy and sugarcane. Most of them were, however, circumspect about the final yield, in view of the IMD’s forecast of excess rains in September.

Many small and marginal farmers had lost their pulses and vegetable crops due to heavy rains accompanied by strong winds. They were dismayed and worried about their ability to manage the resources to plant Rabi crops, mostly potato and wheat.

Some of them, who had taken advance from the traders, were also worried about the repayment. None of the small and marginal farmers mentioned the terms like crop insurance, bank loan, Kisan credit card, etc. Thankfully, there is an abundance of fodder for their cattle this time.

After a discussion of 10-12hrs with these farmers, NGO workers helping them with farming & other issues, and village leaders I gathered that the inflation debates in Delhi (in the Parliament & outside) and Mumbai (at the RBI and brokerage offices) may not be relevant for these farmers and common men like me, because—

·            Policymakers and analysts may be oversimplifying a very complex problem. Food inflation in India maybe influenced by a myriad of factors, e.g., (i) farm input prices, which are also affected by terms of trade, INR exchange rates, availability of subsidy, etc,; (ii) energy inflation as many farmers use electric or diesel pumps to water their farms, and motor vehicles to transport their produce to markets; (iii) farm labor wages, which in turn is also a function of multiple factors like food and energy inflation, availability of MNREGA wages, & other government cash payouts, demand from construction sector, etc.; (iv) weather condition affecting the volume of production; (v) productivity, which depends on the quality of soil and inputs, farming methods used and availability of equipment; (vi) cost of funds borrowed by the farmers, which also depends on access to institutional finance; and (vii) distance from the market, etc.

Bringing down food prices or slowing down food inflation may adversely impact about 60% of the Indian population that depends (directly or indirectly) on agriculture for their livelihood. The solution may therefore lie in enhancing productivity, market access, access to institutional finance, energy efficiency & renewable energy, land reforms and crop rationalization. Someone may argue that all this is already being done. True, there are government programs and policies for all these solutions but execution is seriously lacking.

·            Presently, the primary problem for a majority of the Indian household could be “price affordability” rather than “price inflation”. They may need either a substantial rise in their real wages or a material deflation in the prices of their consumption basket to maintain their regular lifestyle.

·            Statistical inflation being debated and analyzed by the policymakers and analysts may be entirely different from what a common household or investor faces (more on this later).

Reading minutes of the MPC’s previous few meetings, it appears that the policymakers might be waiting for a divine intervention to change their policy stance, as hardly any effective step has been taken by them to make life of people easier.

ASUSE is conducted to measure various economic and operational characteristics of unincorporated non-agriculture establishments in manufacturing, trade and other service sectors (excluding construction).

The key highlights of the survey are as follows:

Demographics

·         There are 65 million establishments belonging to unincorporated ‘manufacturing’, ‘trade’ and ‘other services sector’ in India. Out of these estimated 65mn establishments, about 55% (35.6mn) are in rural areas and about 45% (29.4mn) in urban areas. 85% (5.53cr) of these units are Own Account Establishments (OAE means no hired worker) and the remaining 15% are Hired Worker Establishments (HWE).

·         Uttar Pradesh (13.82%), West Bengal (12.03%) and Maharashtra (9.37%) have the most number of unincorporated non-agricultural establishments.

·         Maximum number of HWEs has been observed in Maharashtra (13.29%). At the same time, Uttar Pradesh comprising 14.46% of the total OAEs, becomes the State to comprise most of the OAEs of the country.

·         Telangana (43.32%), West Bengal (32.74%), and Karnataka (31.42%) are three states where more than 30% of the proprietary establishments have been run by women entrepreneurs.

·         Most of the owners of proprietary and partnership concerns belong to Other Backward Classes (OBC) (51.9%), followed by Others (30%), Scheduled Caste (SC) (13.2%) and Scheduled Tribe (ST) (4.4%) at all-India level.

Activities

·         Of these 65mn establishments 27.4% are ‘manufacturing’ units; 34.7% are engaged in ‘trade’ and 37.9% render ‘other services’.

·         ‘Other retail trade’ and ‘Manufacture of wearing apparel’ are the top two activity categories in rural areas and rural and urban combined basis also. In urban areas, ‘Other retail trade’ and ‘Other community, social and personal service activities’ reported the maximum number of establishments in the urban sector.

·         Only 3.7% of the total establishments had participation of SHGs, through financial intermediation.

Operations

·         Overall, about 41% of the total unincorporated non-agricultural establishments operate within household premises About 83.7% of HWEs are located on a permanent structure outside household premises; whereas operations of majority (about 46%) of the OAEs are home-based.

·         Only 6.4% of the total establishments reported to have maintained audited books of accounts.

Use of technology

·         23.6% of HWEs and 3% of the OAEs have used computers for business purposes during the survey period.

·         47.7% of HWEs and 16.4% of the OAEs have used the internet for entrepreneurial purposes during the reference period. Use of the internet, for entrepreneurial purposes, has increased to 13.5% from 7.7% in rural and to 30.2% from 21.6% in urban sector during ASUSE 2022-23 as compared to ASUSE 2021-22.

Employment

·         Unincorporated non-agricultural economy employed about 110mn workers during the survey period. in comparison to about 98mn workers during the previous survey, an increase of about 12mn.

·         Out of the total estimated workers, 52% (57.2mn) were from urban areas; whereas 48% (52.4mn) were in rural areas.

·         ‘Other Services’ contributed the maximum share (36.45%) to the total employment followed by ‘trading’ (35.61%) and ‘manufacturing’ (27.94%). ‘Other retail trade’ singly generated about one-third share of total employment at rural, urban and also at all-India level.

·         Overall, 25.63% of the total workers of the unincorporated nonagricultural sector, during the survey period were female.

Economic contribution

·         During the survey period GVA per establishment was Rs2.38lacs, up from Rs 2.25lacs in previous period.

·         GVA per establishment for HWEs (Rs. 8,84,310) was much higher as compared to OAEs (Rs. 1,27,073).

·         Delhi (Rs. 3,72,569) in rural, Chhattisgarh (Rs. 5,09,712) in urban and Delhi (Rs. 4,50,728) for overall (i.e., combined rural and urban) produced the maximum annual GVA per establishment.

·         Average annual emoluments paid to a hired worker was Rs.1.25lacs during the survey period.

·         During the survey period, average fixed assets owned by unincorporated nonagricultural entrepreneurs was Rs. 3.18lacs (vs Rs. 2.81lacs in previous period).

·         Outstanding loans per establishment, on average, were Rs. 50,138 at all-India level.

The Good

·         The employment conditions have improved during 1QFY25. The WPR-U improved for all ages and both genders. The Youth WPR-U improved from 39.3% (1QFY24) to 40.8% (1QFY25). For all workers, WPR-U improved 38.4% to 39.3% during this period.

·         The LFPR-U male workers improved from 57.2% in (1QFY24) to 58.9% in (1QFY25) for youth (15-29yrs) and from 73.5% to 74.7% for all workers above 15yrs of age.

·         Self-employed female workers increased in urban areas from 39.2% to 40% while the number of self-employed male workers in urban areas increased from 39.5% to 40%.

·         Unemployment rate in urban areas has reduced marginally from 6.7% (1QFY24) to 6.6% (1QFY25).

The Bad

·         The percentage of regular wage/salaried employees fell marginally from 49.2% in 1QFY24 to 49% in 1QFY25. There was a corresponding increase in the own account and self-employed workers.

·         The employment in the secondary sector (manufacturing, mining etc.) was lower in 1QFY25. More people were employed in the tertiary sector. Worker employed in the secondary sector reduced from 33.1% in 1QFY24 to 32.1% in 1QFY25.

·         The employment for female workers in “household enterprise helper” category also witnessed decline. Female employed in this sector reduced from 11.9% in 1QFY24 to 11.4% in 1QFY25.

·         The proportion of female workers declined both in agriculture and secondary sectors.

The Ugly

·         LFPR-U for female workers remains very low at 18.2% (1QFY25) vs 54.7% for males; even though it has shown improvement from 16.8% in vs 54.1% in 1QFY24. Even for Young females (15-29yr age) it remains materially lower at 16.4% (vs 50.2% for males).

·         Youth (15-29yr) unemployment in urban areas remains very high at 16.8% (23% for young females); even though it came down from 17.6% a year ago.

·         J&K (29.8%), Odisha (28%), Rajsathan (25.5%) and Assam (23.9%) had the worst youth unemployment in the country in 1QFY25. For young female workers unemployment Himachal (41.6%), Kerala (41.9%), Jharkhand (40.6%) and J&K (52.7%) were the worst state.

Conclusion

The huge gender gap in the labor force continues to be a cause of serious concern. Female workers, especially young (15-29yr) females, are getting much fewer employment opportunities. The gender gap in the workforce is persisting at alarming levels and does not augur well for the acceleration in the growth rate. If we juxtapose this data with the education statistics, we find the bridging of the education gap between male and female population has not resulted in equal opportunity for females in employment.

Another cause of concern is that the unemployment remains materially higher amongst the young workers (16.8%) as compared to overall unemployment level in urban areas (6.6%). The reason could be multifold like unemployability (skill mismatch and/or sub-standard education), reducing employment intensity of GDP, and poor employment growth in manufacturing sector. Nonetheless, it substantially diminishes the demographic dividend for the Indian economy.

Persistently, high ratio of self-employed and casual labor (over 40%), inter alia, indicates (i) lower employment elasticity in the organized sector and (ii) skill mismatch.