Bombay:
Even as the economic recovery gains momentum, declining wage growth is becoming a bigger concern as it leads to lukewarm demand and consequent capacity underutilization, widening the already large output gap, a report said.
Households, which represent 44-45 percent of gross value added, saw their nominal wage growth slow to 5.7 percent in FY17-FY21, from a peak of 8.2 percent in FY12-16. This means wage growth in real terms is close to about 1 percent, India Ratings said in a note on Thursday.
This is despite the general economy growing by 13.5 percent in the first quarter of the current fiscal year, much lower than consensus estimates.
Even the recent trend in rural and urban wage growth points to an erosion of household purchasing power. At nominal levels, wage growth in urban and rural areas was 2.8 percent and 5.5 percent year-on-year, respectively, but in real terms, i.e. adjusted for inflation, it was negative 3.7 percent and negative 1. 6 percent in June 2022, according to the report.
As much of consumer demand is driven by wage growth from the household sector, a recovery in their wage growth will be critical for a sustained and sustained recovery in private consumption expenditure and overall GDP growth in FY23, the report added. ready.
As the pandemic has irreparably damaged growth, year-on-year growth does not accurately reflect the recovery due to the low bases of FY21 and FY22. Thus, a better way to assess the GDP/Gross Value Added (GFA) recovery is to compare the growth trend with the pre-pandemic period as a basis.
Accordingly, GDP shows a compound annual growth rate of only 1.3 percent during Q1FY20 – Q1FY23 compared to 6.2 percent during Q1FY17 – Q1FY20.
Of all sectors, the compound annual growth rate of the services sector shows the strongest decline to 1 percent during Q1FY20-Q1FY23 from 7.1 percent during Q1FY17-Q1FY20, implying that the recovery in the sector is still the weakest, says Paras Jasrai and analyst at the desk.
Economic activity in sectors such as manufacturing, while progressing, is very uneven.
Year-over-year industrial production growth was 12.3 percent in the first quarter of FY23, but on a sequential basis it contracted 0.1 percent in June 2022. Even compared to pre-pandemic levels (February 2020), although the majority of sectors are now above pre-pandemic levels, consumer staples are still lagging, with an output of just 95.1 percent from pre-pandemic levels.
Service activity is slowly picking up as normality returns after a two-year period in which most of the pandemic-related curbs have disappeared. Freight traffic (ports and airways) and freight traffic (railways) grew by 8.3-15.1 percent in July 2022, but passenger traffic (both air and rail) remains below pre-pandemic levels in July 2022 .
Another concern is ongoing inflationary pressures, the report said, adding that inflation at both the consumer and wholesale levels still remains high, despite some moderation of recent times. Retail and wholesale inflation stood at 6.7 percent and 13.9 percent in July 2022, respectively, down from the peak of 7.8 percent in April and 16.7 percent in May 2022.
And the agency expects retail inflation to remain high at 6.8 percent in August due to expensive grains and services. Accordingly, it expects the Reserve Bank to continue rate hikes in the 25-50 bp range for the remainder of FY23.
(This story was not edited by DailyExpertNews staff and was generated automatically from a syndicated feed.)