Since the Covid-19 outbreak, the Mahratta Chambers of Commerce, Industries and Agriculture (MCCIA) has been tracking the state of economy in Pune. After the latest surveys showed encouraging figures, Prashant Girbane, director general of MCCIA, spoke to The Indian Express about the way forward:
The Indian government recently published Q2 GDP numbers…is Pune in tune with these numbers? While the manufacturing sector across the country shows 0.6 per cent growth, your surveys for Pune suggest lower recovery than that.
Last week, the government announced its Q2 (July-Sept) GDP to be 7.5 per cent lower than the same period the previous year. Technically, this puts the Indian economy in a recession like most other economies globally, as we have observed contraction for two subsequent quarters. While this is still a contraction, it is a significantly positive jump from that in Q1 (23.9 per cent contraction).
The pleasantly surprising element in the numbers is the manufacturing sector growth year-on-year, albeit only at 0.6 per cent. MCCIA’s monthly surveys on ‘Economic Recovery’ of Pune region are broadly in tune with this. Of course, the numbers aren’t the same as the methodologies used by each are different.
MCCIA monthly survey has indicated month-on-month improvements in both production levels and ‘employees deployed’ level leading up to almost 80-82 per cent recovery to pre-pandemic levels in our latest survey concluded last week. The numbers at about 90 per cent are even more encouraging for large firms.
If listed companies are showing significant profitability jumps and the broader economy is still not entirely out of the woods, what’s missing?
Q2 2020 recorded the highest quarterly profits made by listed companies. A look at the wage bills in the quarter shows no significant drop, it instead shows a slight single-digit increase, which indicates that the higher jumps in profitability are not at the cost of wage bills but operational efficiencies. Of course, these profitability levels are not sustainable and are bound to decline but hopefully not below longer-term mean.
What’s missing is the performance of MSMEs and the informal sector. They contribute 30 per cent of GDP, 45 per cent of exports and 90 per cent of jobs. Most of them do not benefit from formal credit. Also, there are certain segments of ‘services’ sector like hospitality and tourism that have yet to gain pace of recovery.
Even as MCCIA Monthly Surveys on Economic Recovery show, the recovery in micro and informal firms is far more modest than in large companies. The jobs lost in these sectors have not yet fully recovered.
MSMEs, both formal and informal ones, together employ the largest number of people. That has an impact on aggregate demand and so, the full recovery will await recovery in this segment.
What are the expectations for the next quarter, i.e. Jan-Mar 2021 and the overall Financial Year?
When we talk about the next few months, there are a couple of assumptions to make here: one is that we would take all precautions to avoid the second wave, like in some western countries and second is that we would avoid lockdowns, the kind we saw in the first few weeks and months, much of which were necessitated by the onslaught of this pandemic and far higher order of uncertainties then.
With these assumptions, Oct-Dec quarter is expected to record far shorter contraction but a contraction nevertheless and Jan-Mar quarter will deliver an expansion, again in lower single digits. This will reduce the impact of 15.7 per cent contraction so far in H1 of this financial year. Still, it will be a contraction nevertheless and one that is expected to be the worst contraction in the recorded history of independent India.
The severest contraction till date (5.2 per cent) belongs to the 1979-80 period thanks to oil supply shocks made worse by one of the worst droughts faced by the country.
MCCIA Monthly Survey of Economic Recovery indicates that at least 25-30 per cent of companies are already at pre-Covid levels, 20-25 per cent will get there in three months and another 25 per cent in three to six months indicating that at least 75 per cent of companies will get to pre-Covid levels by June 2021.
There is a good chance that with the assumptions mentioned earlier holding true, increasingly the time required to recover to pre-Covid levels will reduce in subsequent monthly surveys.
Labour unions have talked about less work and lots of unemployment in the Pune region. What is your view about this?
Indeed, the employment levels are not yet at pre-Covid levels, our survey of 150-200 companies shows it to be at least 82 per cent and at 89 per cent for large companies. Till it reaches 100 per cent and, better still, improves from those levels, there will be a heightened level of unemployment or reduced level of labour participation, but the extent of this is declining month-on-month so far. If this trend continues, we should hope to reach there in the next couple of quarters.
The pandemic has created the challenge of redeployment of informal workers, especially in the informal sector. This requires promoting labour-intensive industries like construction and manufacturing — the latter one for both domestic as well as export markets.
To support the informal workers, government at both Centre and state-level needs to incentivise companies to organise a mechanism in which there are industry-led training and skill development programmes through entrepreneurial skill development ventures that support the training of informal workers. These workers otherwise have to step out of labour markets back to farming that is not remunerating or worst still, to poverty levels.
How can government incentivise the private sector to do that? What shape will it take?
Let’s make some quick calculations, to support 5,00,000 informal workers across the state of Maharashtra with training and skilling with an expenditure of Rs 10,000 per worker, we are looking at a budget of Rs 500 crore. This fund could be used by the state government (with some support from Centre) to issue ‘Aadhar’ linked digital skill voucher of Rs 10,000 each for every willing informal worker.
Larger employers who seek skilled, trained workers should be encouraged to recommend a list of training institutions recognised by them so that the value of certification issued by these institutions matches the expectations of the employers themselves.
Each worker seeking training to enhance her chances of jobs can approach any of the many listed training institutions with the Aadhar-linked digital voucher and get trained with certification valued by the employer. Of course, systemically, the linkages would need to be designed to eliminate the moral hazards of the scheme being gamed. Today, technology allows us to do that.
It will be a win for all those involved, including the government, if this scheme is kept market-driven.
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