#12 No Room to Grow, 'K', and Reacher

Reality strikes the budget.

Room to Grow?

Surveying the Budget

The Economic Survey 21-22 was a callous document, completely ignoring the massive on-going loss of employment, which I believe is the most substantial economic development of recent years. I have commented on job losses in an earlier newsletter, #2, drawing on data from the Center for Monitoring the Indian Economy (CMIE), and the columns of Mahesh Vyas, its CEO, in the Business Standard. 

There is a direct link between employment and consumption; hence it is no surprise that ‘private consumption’, the goods and services consumed by households, has fallen by 3% over the last two years. The first impulse of economic policy must be to heal this scar, especially since there is evidence that the cut has been much deeper than 3% for the already poor.

Car sales, the Economic Survey acknowledges, have dropped. It is quick to blame this on production constraints, coming from a global shortage of computer chips. True, but the authors of the Survey decided not to discuss the drop in 2-wheeler sales, which ended FY 21 at 15 million, lower than annual sales in FY 15, six years ago. This hard fact - flying in the face of Swiggy riders careening down urban streets - is a clear sign of  middle class stagnation. 

As I warned, in my last newsletter, though, I did not think that the budget would be able to do much to address the growth constraints in the economy. The government is tied by excessive debt, the burden of interest payments, and its long-standing inability to collect taxes beyond 10% of GDP.

While the Budget was marketed as a pro-growth plan, it is primarily an exercise in fiscal prudence. The Finance Minister decided to begin the path of fiscal consolidation, and target a fiscal deficit of 6.4%, down from 6.9% in the year ending on March 31st. As a consequence, the budget for the coming year asks the government to freeze revenue expenditure at the levels of the current year, but provides for an extra 2 lakh crore (or 2 trillion) rupees for capital expenditure. This is a growth of 35% over the estimated figure for the current year, and could be billed as a good growth feature.

I say “could be”, because there is considerable doubt about the government’s ability to actually spend this money over the next 12 months. Half of the amount, in any case, is a provision for state governments to draw the cash as extra long-term loans, so the growth problem has been farmed out, as it were. Neelkanth Mishra, India strategist for Credit Suisse, and member of the Prime Minister’s Economic Advisory Council (PMEAC), said of this planned capex, "I may want to run the 100 metres in under 10 or 12 seconds but I can't make it even in 15." 

In reality, he believed, “you are talking about some Rs 60,000-Rs 65,000 crore increase (in capex)”, which is more like 12%. 

Writing in the Business Standard, Vinayak Chatterjee, of Feedback Infrastructure, analysed data that underlined the slow arc of infrastructure expenditure. He was able to dig out completion data on 844 infrastructure projects worth over 150 cr each. Of these, 11 were ahead of schedule, 292 were on track, and 541, or 65%, are delayed.

Infrastructure, the singular growth feature of this budget, then, looks both limited, and likely to be delayed. Reality check.

The Budget’s growth numbers had me a little confused on another count, too. Nominal growth of  FY 23 GDP, measured in rupees, is estimated to be just over 11%. Real GDP growth, after accounting for inflation, has been touted at 8.5%. The difference, of under 3%, would be the GDP deflator, a measure of inflation. This doesn’t sound right, with the current number running at closer to 6%, and likely to see upward pressure, especially with crude oil on the boil. The government took excise cuts on petrol and diesel in November 2021, and has held prices down since then, even though crude prices have gone from the low 80s to the low 90s in the intervening period. Holding prices down will impact tax collection and the deficit; allowing fuel prices to rise after the March elections will push up consumer prices, and impact consumer sentiment, which continues to be under severe pressure.

Pronab Sen said to Karan Thapar in an interview for The Wire, that the Union Budget is an exercise in signalling. The message here is that nominal growth will be 11%, but given inflation in the 5 to 6% range, real growth will also be in the 5 to 6% range. That would hardly be surprising. Growth had slowed to below 4% in the last quarter before the pandemic, and there has been no structural change since then to bolster our long-term growth.

That K Shape

Every other day, you come across data to reinforce the sense that the “economic recovery” is lop-sided. Two weeks ago, it was massive gold auctions in the face of buoyant demand for Tanishq jewellery. Incidentally, Titan, the Tata company which owns the Tanishq brand, reported a 90% surge in profits last quarter. 

Last week, the Finance Minister announced that the government would allocate 44,000 cr to build 8 million affordable homes under the PM Awaas Yojana. That works out to Rs. 55,000 rupees a home. After the unprecedented October rains in Uttarakhand, I’ve helped village neighbours with advances to rebuild rooms, and 55,000 doesn’t sound like a lot for a new home.

Two days ago, I read a news report about leading Delhi/Gurgaon builder DLF, which said they were planning to raise the price of their ‘Camellia’ flats by 5,000 rupees a foot. I made a couple of calls, and learned that the going price is already 25 cr for a 7,500 square foot apartment. That’s 33,000 a square foot, and DLF believes that demand from the Gurgaon elite is buoyant enough for another sharp hike.

The New Reacher

Friday was Bezos day for me.

First, excellent results from Amazon rescued the tech index Nasdaq from the pummelling it got in the face of disastrous Facebook earnings.

And, the new Reacher series had dropped on Prime Video. With the budget and the working week behind me, this was perfect timing, and the binge began on Friday night. My No. 1 question, “Does he look the part?” 

He, meaning Alan Ritchson, cast as Jack Reacher, the army veteran who is so big, “he has to go sideways through doors”.  

Indeed he does, but to the point where, having bulked up for the role, the lead character looks like an Android on Steroids, rather than a battle-scarred ex-military policeman. For the first couple of episodes, director, cameraman, lead actor, costume designer, all seemed obsessed by the need to underline that - unlike Tom Cruise on the big screen - this is the real Reacher. Camera placements emphasised his height, short-sleeved T-shirts pointed at his baseball-sized biceps, his over-developed back and shoulder muscles pushed his arms and hands miles away from his tiny waist. And just in case you missed all that, he peeped out from a changing booth in a garment store, stripped down to the waist so you could tick the box on “sculpted six-pack”. Early exchanges designed to underline his laconic nature made something of a caricature of it.

But after a few episodes, Lee Child’s story-telling took over and Ritchson became both credible and empathetic, even as the death toll mounted. Based on The Killing Floor, the season is set in a small town in Georgia, with a compelling cast of characters; the screenplay and episode directors give each of them enough space to create some nuance, and a relationship with the visiting vigilante.

This is not a film review! I am an avid Lee Child fan, and I forgive the self-consciousness of the first couple of hours. If you like action, this is a great binge-watch.

TILpiece

Ghost flights

European airliners have been running empty flights this winter - some 18,000 of them.

Low occupancy, would compute, because of COVID. 

But ‘ghost’ flights, because regulations mean they would lose their precious airport slots if they didn’t use them. This is bureaucratic stubbornness beyond belief.