Economic Highlights
New
Delhi, 27 March 2023
Global Inflation Sticky
JOB CUTS SLOW GROWTH
By Shivaji Sarkar
The typical Indian scenario is hit
by inflation, global job cuts, bank crisis, agitated farmers and passing the Union
Budget and other sanctions amid pandemonium. Stickier politics in the wake of Congress
leader Rahul Gandhi’s disqualification from the Lok Sabha may have its cost on
overall functioning if it does not turn out to be a whimper.
There is nothing technically wrong.
A discussion paves way for solutions. The budget has 45 amendments increasing
overall tax collections. It is likely to make living costlier, but no one
discusses the price hikes. Inflation despite a lower rate now is pre-pandemic
problem. It is misconstrued as a mere problem of purchasing power. It impacts a
government the most, being the largest spender. Evolving ways to check it could
help the government in reducing expenses, debt, and accelerate welfare and
development schemes. Inflation is bleeding the government despite slump in
Brent crude prices to $70 from $90, a few weeks back. Co-chair of G20 Framework
Working Group V A Nageswaram says that in several countries’ inflation is
stickier and growth would remain around 6.5 percent.
The government feels upbeat that
growth would remain around 7 percent. Now it needs to check inflation, not an
easy task in an uncertain world. It’s not an easy task amid job cuts by
IT giants like Accenture --19000, including 7000 in India, Amazon -- 9000 and
Meta 11000 in March 2023 in addition to their earlier staff reduction. It
impinges on the domestic IT companies as well. The privatised economy is
finding creating jobs not easy.
The global economy finds governments
slipping in a world that is controlled by private capital. Banks almost all
over the West are uncomfortable with periodic siphoning. The US banks do not
have a good record. The US Federal Deposit Insurance Corporation (FDIC)
closed 465 failed banks from 2008 to 2012. In contrast, in the five years
prior to 2008, only 10 banks failed. At the end of 2022, the US banking
industry had a total of about $620 billion in unrealized losses as a result of
investments weakened by rising interest rates. Post 2012, 67 banks have
collapsed till 2019.
Credit Suisse is not the only
European bank to suffer. There could be many more. At the stock market banks
remain unimpressive. Indian banks took a few haircuts due to failure of some
large loans not being repaid. There have been mergers and recapitalisation till
a few years back. Defaulting on payment, write-offs are the common aspect that
afflicts the banking industry everywhere. India is not absolutely insulated.
Life Insurance Corporation and a group of some banks have lost a tidy sum due
to crashes.
Inflation remains a key issue. The
interest rate hike is a reality. As this happens anywhere, the inflation
indicator may shoot up in India. At 6.44 percent rise consumer price index
(CPI) is beyond the Reserve Bank of India tolerance level. Last year, CPI hit
the highest of 7.79 percent in April, and WPI reached 15.88 percent in May
2022. Compared to inflation in February 2020, CPI is down 0.14 percent, whereas
WPI is up 1.59 percent. That is an indicator of over three years of
inflationary trend. The WPI at 2.95 percent in January and 2.75 percent in
February 2023 looks at a low level. It is over the high of 15.88 percent WPI
and 7.79 percent CPI, that RBI despite rate hikes struggles to keep it under
check.
The prices are at a high plateau.
Each small hike robs the purchasing power of the people. Except for the most
essentials all other goods lack demand. It is causing production slump.
Except during seven-year drought in
1960s, never have the prices been on a continuous upward trend for so long.
Ironically, it has fomented once again the farmers’ stir. About 10,000 of them
marched to Mumbai as onion prices slumped to a never before level. The farmers
dharna in Delhi also during the last week is no solace for anyone. The
situation is piquant. Prices of farm inputs are going up while costs of
produces are plummeting. Potato and onion farmers are finding the going tough
forcing them in many parts to throw these away.
Across the country farmers demanding
profitable minimum support price are marching to vent grievances all over the
country. Farmers are demanding remunerative prices and support to the largest
segment of population dependent on agriculture. The government purchases of
wheat and rice still remains the highest but so does the problems of the
sector.
These all have bearing on the job
market. The crisis in the secondary industry of IT is a pointer to the crisis
in the primary industry. The manufacturing and core sectors are yet to have
normal operations. Pandemic-driven enthusiasm around digitisation &
technology drove companies to go on hiring spree came to screeching halt
towards later part of 2022, as workforce reductions started. Mass lay-off has
become the norm.
The Layoff.fyi, website on job
tracking in tech industry, says globally 153548 jobs were cut in 2022 by over
1000 companies. It continues through 2023. Despite NASSCOM saying that India is
least affected, overall the IT industry is reducing manpower though it has 51
lakh on rolls with a value of $227 billion.
The reduction in manpower comes with
higher software and hardware costs. It increases industry input costs across
the industry and the government sector. Unethical tech “upgradation” is
virtually a no-discussion zone. It hikes cost on the consumers without a rise
in production cost and makes inflation worse. The tech and pandemic linkages
remain a mystery. During Covid19, digital technology is credited with
minimising social risk factors, but many questions on whether it orchestrated a
fear psychosis for imposition of the lockdown to increase its footprint has not
yet been scrutinised.
The complex questions of job losses
across the board from the rural, farm sectors to every other conceivable area
adds to the social, law and order and governance costs. Again, it means
inflationary trends to continue. Is it all going beyond the capacities of the
government? That’s a critical question. It can happen just as a process or may
have been deliberately planned. The society and governments need to study
these. Inflation cannot be accepted as natural when critical input costs like
crude prices slump. India should lead the probe as every cent increase in
prices delays India’s journey progress.--- INFA
(Copyright, India News & Feature
Alliance)
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