SALARY HIKES & BONUSES ALL IN FY-23.

Indian balance sheet recovery will take many quarters.  The battle between taxes and inflation and the middle class will be one of the most fearful. The per capita income will be declined and the major part of the same will go towards management of the wide gap created through the pandemic.  The office has opened and show-off on the street is that jobs are back and people are busy. Well, the fact is 6 hours daily is now the daily commuting time which is required followed with a 40% salary cut. Opening up of offices does not mean business. People are sceptical to consume which impact demand and begin the vicious cycle.

Who has taken the pain of the economic slump? The Indian economy has lost jobs which will take FY-23 to get back. All bonuses, salary hikes are now for the year Fy-23 as FY-21 is lost and FY-22 will take time for controlling and repairing the damages. The biggest impact of falling salary levels, cut and jobs cuts will be on the consumption of essential goods where there will be chopping game will begin. The economy will face more hardships as delay in recovering takes place. As per the CSO, in FY19, Rs59 tn of salaries were paid by corporations, the government and household enterprises . Wage-earners also benefit from dividends, rents and interest paid by corporations and HH Enterprises routed through financial corporations. Further, 49% of wages in India paid by corporates, 27% by the government and 24% by the informal sector. Hence it is now well clear where the impact is more and its consequences for the longterm.

 Informal sectors have been highly impacted which remains unaccounted regarding the depth of the collapse. Indian economy is not like the US or European economy where printing of currency and free transfer of funds into bank accounts cannot be made.  Well, another 50 years India has to wait to become a nation like the US. Jobs which are lost are either lost forever or compromised with significant pay cuts. In simple terms, Indian consumers have now be pushed back by 2 to 3 years in terms of salary hikes and remuneration. We all know that as per survey India’s current unemployment is around 60 to 70 lakhs. Well, the same will rise more. Corporate cost to Sales was around 7% to 10% in the month of April 2020. In August 2020 the number has gone up by 15 to 20%. Reason being sales have become zero and cost is now a real burden. Hence chopping of jobs are going to increase and will not be coming down.

The loss on the economy is divided more on the household segment rather the government. On-financial corporations have taken a huge set back due to this pandemic. It is estimated that  33% of this Rs22 tn output loss would be seen by HH enterprises (i.e., informal firms), 32% by the government, and 35% by non-financial corporations. The consumption climate and GDP growth are dependent on the net impact on disposable income though, would depend on how wages, taxes and the financial costs of interest, dividends and rents change.  The alternative source of income and class of the people will decide the course of action of the Indian GDP.

The final year passed out students from different fields followed with ones who are hiring have been placed hold are now extensively betting on who will quote the lowest salary to get the job. The truth is harder than fiction. FY-23 will be a time when the dust will settle. But before that Indian middle class have to face a nightmare. Inflation will not be coming down. Those who are betting for the same well they must know that as diesel and petrol prices have been hiked the price of goods have gone up. Transportation cost has simply jumped followed with a lack of supply.

The government of India is helpless as it does not have much ammunition and hence taxes and other government revenue forms will be just like a nuclear bomb in the families of the middle class. Government kitty has swollen up and the battle between state and centre on GST and outstanding payments will be a fearful event. In the coming budgets tax cut expectation and any capital market tax cut expectation is just going to be a foolish affair. But the on-going the tug-of-war between the centre and the states on GST compensation and in general fiscal help for states (which cannot borrow without the centre’s permission) may not end quickly, putting some of the state government CAPEX at risk.  Hence state expenditures and Capex planning all is under wait and watch mode and will be slow, placing more pressure on the economy and middle class.

Looking at Transport and communication (ex. petrol and diesel), we see a rise of 10.5% in Aug-20 (vs. 9.8% in Jul-20) indicating higher transport costs likely due to higher fuel prices (including bus fare, airfare, other conveyance, porter charges, and railway fare etc.). This inflation will not drop and the battle with the middle class will begin from here only. The inflation range would be around 6.5% to 7%  as other factors are exerting pressure on the same.

 To sum-up inflation, rising job loss and pay cuts, betting of lowest pay packages cannot be ignored. State government expenditures post-flood situation and COVID will be weaker. The sectors where consumption is currently restricted are mostly services provided by low wage earners  and this segment followed with the middle class is completely under extreme pressure till FY-23. One has to wait for salary hikes till FY-23.