R Srinivasan

Durga, Ravana, Santa Claus and the FM

R Srinivasan | Updated on October 13, 2021

Festive cheer With major religious festivals coming up, businesses are pinning hopes on spending spree   -  Ragu R

The Indian festival season is the most important three months in the year for growth

During a recent visit to Chennai, I heard about a local entrepreneur running a small IT firm with around 80 employees (while large campuses like Infosys and TCS dominate it, India’s longest IT corridor along the Old Chennai-Mahabalipuram Road is dotted with hundreds of such small firms), who was planning to sell out and get out of the business altogether.

And no, not for the reasons you’d expect — the Covid shutdown, lack of finance et al. He was selling out because he could no longer afford to retain his talent! Young employees in their first or second jobs were marching up to him with offer letters doubling and even trebling their salaries. He could neither match such staggering raises nor afford to replace those exiting at the going rates, which would have bankrupted his business. So he decided to cash out.

Now this is not a disaster story. In fact, quite the opposite — it may be the most encouraging anecdote I have heard in a long while. India’s IT-BPO sector, which has been doing most of the heavy lifting as far as creating quality, well-paid jobs in the country is concerned, is once again leading from the front.

According to a survey by consulting firm Aon, India’s technology sector will take the lead as paymasters, with an average industry-wide hike of 11.2 per cent in 2022. The ITeS sector will follow closely behind with an average hike of 9.2 per cent. And for techies lucky enough to be working in the start-up section of this sector, the increments will be more than double this high sectoral average!

Similar numbers are reflected in Deloitte’s Workforce and Increments Survey, which pegs average IT sector hikes at 10 per cent, the highest for any sector in the economy, followed closely by e-commerce and financial services. In fact, the Aon survey lists e-commerce also in the double digit pay hike category.

This is really good news for the economy, because these pay hikes are happening across a larger base of total jobs. While jobs data in India are hard to come by and are both patchy and gappy, the government has finally woken up to the need for some reliable employment data (after earlier squelching the NSS surveys because the numbers were showing some inconvenient truths).

The new Quarterly Employment Survey put out by the Ministry of Labour recently, shows that there has been a strong growth in employment — an increase of 29 per cent in employment across nine major non-farm sectors of the economy since 2014, when Narendra Modi came to power (apparently, the previous years do not matter).

The IT/BPO sector, once again tops here, showing the strongest growth in job creation in the nine non-farm sectors the QES covers. Employment in India’s technology sector grew at 152 per cent over the past seven years. This was double the growth rate in the health sector (77 per cent), and transport (68 per cent), the next best performers. The government’s great hope, and the focus of almost all its key economic policies, the manufacturing sector, logged just a 22 per cent increase in jobs over seven years, or an annual rate of 3 per cent, which is coincidentally also the national average in the AM (After Modi) era.

Consumption boost

All of which should mean very good news for Finance Minister Nirmala Sitharaman. No she is not getting a hike (I wonder whether ministers get hikes like ordinary salarymen), but all this additional cash stuffing the pockets of India’s educated and employed middle class ought to send consumption soaring.

Global credit rating agency Moody’s, while upping India’s ratings outlook from negative to stable (the rating itself is still the same), said the economic environment in the country, with the upcoming festival season and the increasing pace of Covid vaccines, will help in pushing growth up to 9.3 per cent in FY21. In FY22, the GDP growth rate is expected to slowdown to 7.9 per cent as some of the ‘base effect’ (the Covid recession in 2020) is worked off.

The key to that happening will depend on whether or not a third wave interrupts the upcoming festival season. October 7 marked the end of the ‘pitru paksha’ period, hated by sellers of all big ticket items in India, from jewellery to cars to real estate. This is because this fortnight between two new moons is when Hindus pay homage to their ancestors, and, more importantly, avoid any form of self-indulgent consumption.

This also marks the start of the Great Indian Festival season. With the landmark festivals of all of India’s major religions falling within the next three months, it is also the most critical period of the year for many businesses, with this intense period accounting for as much half the year’s total sales in many sectors.

Redseer Consulting estimates that online e-commerce firms will see a surge in sales of over 23 per cent over last year’s festival season, with overall sales expected to cross $9 billion in value. Consumer durables firms, which log a third of their annual sales over these three months, expect to see at least a 20 per cent increase in sales. Retailers are hoping that sales will return to pre-pandemic levels. A British Council study found that the ongoing Durga Puja is a ₹32,000-crore industry in West Bengal and accounts for 2.58 per cent of the State’s GDP!

So yes, the Indian festival season is critical for economic revival. Private consumption expenditure, which accounts for roughly half the GDP, actually fell nearly 10 per cent in the financial year ended March 2021. Any turnaround — and consequently a sustained increase in tax collections for the government — is therefore, critically dependent on private consumption picking up the slack, since Finance Minister Nirmala Sitharaman has already made it clear that the Covid-induced opening up purse strings is now over.

All the portents that this might happen are there, as indicated by jobs growth numbers and dipsticks on pay hikes. The FM could do worse than to make sure that she does the equivalent of breaking a coconut to all the Gods whose festivals are coming up now. Just in case.

Published on October 13, 2021

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