Skilled Household Balance Sheet Impact

Credit card recovery agents will be knocking the doors and also bank recovery agents will now find significant recruitment opportunities under the present lockdown situation. I am not making fun nor am I trying to scare people. Well I am throwing light on the semi-skilled and skilled manpower and not on the unskilled labour force. The Pandemic has changed the global economy radically and also the individual life of the people on the earth. The pandemic impact is now very much visible but it is still under the clouds since the correct depth of pain is yet to be ascertained. The Indian economy is currently under the lockdown and speculation of measuring the depth of the plunge. Well, we are far from measuring the actual depth which will open up post-Lockdown. The recovery of the Indian economy is expected to be either V or W or U but among all these letters the U and the W have the highest probability of coming forward.

Lockdown not only impacted the Corporate balance sheet but also the Household balance sheet. This is the main key for the revival of the Indian economy and this is the sole decider for the speed of the recovery from slowdown. Lockdown has impacted not only the unskilled labour force but the skilled manpower too. Unskilled has already got blown away from the lockdown. But now the skilled is also on the verge of collapse. Rather I would say it is collapsing.

Job cuts, pay cuts, restricting of CTC where around 25% to 30% even in many cases up to 40% is getting into variable target based packages. Bonuses have been cut down. Restructuring of manpower is another blow. The semi-skilled and the skilled is significantly impacted. Investments are being stopped and redemption is now the new source of income for these people.

The household balance sheet is so much stressed that many families are thinking about how they will manage post-Monotorium. We are all projecting numbers of corporate NPA’s but retail NPA is about to find a significant jump. Car Loan, home loan, consumer durable loan, private loan for other purpose all are going to impact the household balance sheets. Credit cards will find soaring balances now and many of the loans will now be heading default category and asset will accumulate on the financial institution side. Credit scores to go for a wild swing.

Even the loan taken from family people will be required to pay back as they will also demand in these tough times. Household balance sheet contributes 30% of the Indian consumption market in Fy19 and hence this has a significant key for the recovery of the Indian economy.

If we look at the composition of employees we will find

• 40% =Self employed
• 24%-Salaried
• 22%-Casual
• 14%=Others

The self-employed professional segment will face more hardships as contractual agreements will be terminated and fees income will be delayed. The non-financial debt burden will be more for India. People will be more under the savings target rather than expenditure. Until the household balance sheet gets back to shape where they have secured a job and economic climate followed with buffer capital at home will be key factors for getting the consumption climate back. The household income and the leverage of loans will now find significant gap widening which is derived mainly due to fall in income. The household balance sheet will impact not only the Indian consumption but will also bring social unrest and problem for law and order. Income inequality will grow within the skilled segment.

This problem will decide the fate for the Central bank's actions and policies framework. But the demand and demand creators and consumption creators are all linked together. The GDP of many countries will be facing a similar situation where both are linked to each other. Export market of India will not find demand at this point. Hence these employments which are dependent one export are bound to face the heat of cut down. The cut-down or restricting is not industry-specific but it is now all industries which are included in the carnage.

The direct transfer of money into the bank accounts may not bring consumption since people will be saving more. They will spend less and the current lockdown has changed the behavioural aspect of the people. In a country like Indian people are very quick to the subject of savings and cutting down expenditures. Hence now you can calculate the depth of the recovery and how much time it will take. Further, as the Covid 19 is not fully curable till the time the vaccine comes into place the consumption will not pick up as expected.  

Many industries, jobs, business verticals, channels are now completed eloped or destroyed. Hence the manpower related to the same is now under the doldrums. Many sectors which are dependent on crowd-based consumption will face a significant problem.

The Indian economy has to struggle under the Pre-COVID phase. Trade-war and NBFC crisis lead to struggle mode and now the same has converted into a death trap. The demand scenario is now subjective to the revival of the Global and domestic consumers. As household balance sheets will revive so the economy will revive. Stimulus expectation from the Indian government cannot be utilised for stock market revival but for the consumers to get back on the street.