India's Economy Grew Only 0.2% Annually in the Last Two Years

The Indian government has reported an 8.4% jump in economic growth in the July-to-September period compared with a contraction of 7.4% for the same period a year earlier. The average GDP growth in India over the last two years has averaged just 0.2% per year. The news appears to indicate strong recovery after a big economic hit suffered from the COVID pandemic since early 2020.  Pakistan's economy fared relatively better during the pandemic. Pakistan's GDP rose 0.5% in 2020 and 3.9% in 2021. As a result, Pakistan now fares better than India on multiple indices including Hanke Misery Index, World Happiness IndexFood Affordability Index and World Hunger Index.  

India's Economy:

Welcoming the news, renowned Indian economist Kaushik Basu tweeted:  "India's growth of 8.4% over Jul-Sep is welcome news. But it'll be injustice to India if we don't recognize, when this happens after -7.4% growth, it means an annual growth of 0.2% over 2 years. This is way below India's potential. India has fundamental strength to do much better".

Indian Economist Kaushik Basu's Tweet 

Indian-American Nobel Laureate  economist Abhijit Banerjee, too, spoke out in agreement. He said, "I think that we (Indians) are in a moment of great pain. The economy is still well below as against what it was in 2019". "We don't know how much below, but it is substantially below. And I am not blaming anybody, I am just saying", he added.   

India's Rising Public Debt:

India's debt to gdp ratio is nearing 90%, the highest in the South Asia region. It has risen by 17% in the last two years, the most of any emerging economy. By contrast, Pakistan's debt to GDP ratio has increased by a mere 1.6% to 87.2% from 2019 to 2020.


India's Rising Debt. Source: Business Standard

The International Monetary Fund (IMF) has projected the Indian government debt, including that of the center and the states, to rise to a record 90.6% of gross domestic product (GDP) during 2021-22 against 89.6% in the previous year. By contrast,  the percentage of Pakistan's public debt to Gross Domestic Product (GDP) including debt from the International Monetary Fund, and external and domestic debt has fallen from 87.6% in Fiscal Year (FY) 2019-20 to 83.5% in FY 2020-21.    

Hanke's Misery Index: 

Pakistanis are less miserable than Indians in the economic sphere, according to the Hanke Annual Misery Index (HAMI) published in early 2021 by Professor Steve Hanke. With India ranked 49th worst and Pakistan ranked 39th worst, both countries find themselves among the most miserable third of the 156 nations ranked. Hanke teaches Applied Economics at Johns Hopkins University in Baltimore, Maryland. Hanke explains it as follows: "In the economic sphere, misery tends to flow from high inflation, steep borrowing costs, and unemployment. The surefire way to mitigate that misery is through economic growth. All else being equal, happiness tends to blossom when growth is strong, inflation and interest rates are low, and jobs are plentiful". Several key global indices, including misery index, happiness index, hunger index, food affordability index, labor force participation rate,  ILO’s minimum wage data, all show that people in Pakistan are better off than their counterparts in India.   The rankings for the two South Asian nations are supported by other indices such as the World Bank Labor Participation data, International Labor Organization Global Wage Report, World Happiness Report, Food Affordability Index and Global Hunger Index.  


Hanke's Annual Misery Index 2021. Source: National Review

Employment and Wages:

Labor force participation rate in Pakistan is slightly above 50% during this period, indicating about a 2% drop in 2020.  Even before COVID pandemic, there was a steep decline in labor force participation rate in India. It fell from 52% in 2014 to 47% in 2020. 

Labor Force Participation Rates in Pakistan (Top), India (bottom). Source: Trading Economics

The International Labor Organization (ILO) Global Wage Report 2021 indicates that the minimum wage in Pakistan is the highest in South Asia region. Pakistan's minimum monthly wage of US$491 in terms of purchasing power parity while the minimum wage in India is $215. The minimum wage in Pakistan is the highest in developing nations in Asia Pacific, including Bangladesh, India, China and Vietnam, according to the International Labor Organization.

Monthly Minimum Wages Comparison. Source: ILO

Global Food Security:

Pakistan (with 52.6 points) has scored better than  Bangladesh (48.8), Nepal (48.3) and India (50.2 points) in terms of food affordability.  Sri Lanka scored higher with 62.9 points in this category on the GFS Index 2021,  according to a global report released by Economist Impact and Corteva Agriscience recently. 

Ireland, Australia, the UK, Finland, Switzerland, the Netherlands, Canada, Japan, France and the US shared the top rank with the overall GFS scores in the range of 77.8 and 80 points on the index. 

In overall food security, Pakistan ranked 75th with a score of 54.7, ahead of Sri Lanka (77), Nepal (79) and Bangladesh (84), but behind India ranked 71st with a score of 57.2 points on the GFS Index 2021 ranking 113 countries.

Pakistan improved its GFS score by 9 points (to 54.7 in 2021 from 45.7 in 2012) while India’s score improved only by 2.7 points to 57.2 in 2021 from 54.5 in 2012.  Nepal improved by 7 points (to 53.7 points in 2021 from 46.7 points in 2012) and Bangladesh by 4.7 points (to 49.1 in 2021 from 44.4 points in 2012). China’s score improved by 9.6 points to 71.3 in 2021 from 61.7 in 2012, the report said. “The GFSI looks beyond hunger to identify the underlying factors affecting food insecurity around the world,” said Tim Glenn, Executive Vice-President and Chief Commercial Officer, Corteva Agriscience.

The cost of living in Pakistan is the world's lowest despite recent inflationary trends, according to the Cost of Living Index for mid-2021 as published by Numbeo.  Numbeo Grocery Index reports that the food prices in Pakistan are the second cheapest in the world. 

History of Inflation in Pakistan. Source: Statista



Global Hunger Index:

Global Hunger Index 2021 report has ranked Pakistan 92nd, ahead of India ranked 101st among 116 countries.  Pakistan's other South Asian  neighbors are ranked better: Nepal (76), Bangladesh (76), Myanmar (71). 

Hunger Trends in South Asia. Source: Global Hunger Index 

Pakistan has been reducing hunger at a faster rate than India but slower than other South Asian neighbors like Bangladesh and Nepal.  

World Happiness Index: 

Amid the COVID19 pandemic, Pakistan's World Happiness ranking has dropped from 66 (score 5.693) among 153 nations last year to 105 (score 4.934) among 149 nations ranked this year. Neighboring India is ranked 139 and Afghanistan is last at 149. Nepal is ranked 87, Bangladesh 101, Pakistan 105, Myanmar126 and Sri Lanka129. Finland retained the top spot for happiness and the United States ranks 19th. 

Pakistan Happiness Index Trend 2013-2021


One of the key reasons for decline of happiness in Pakistan is that the country was forced to significantly devalue its currency as part of the IMF bailout it needed to deal with a severe balance-of-payments crisis. The rupee devaluation sparked inflation, particularly food and energy inflation. Global food prices also soared by double digits amid the coronavirus pandemic, according to Bloomberg News. Bloomberg Agriculture Subindex, a measure of key farm goods futures contracts, is up almost 20% since June. It may in part be driven by speculators in the commodities markets. These rapid price rises have hit the people in Pakistan and the rest of the world hard. In spite of these hikes, Pakistan remains among the least expensive places for food, according to recent studies. It is important for Pakistan's federal and provincial governments to rise up to the challenge and relieve the pain inflicted on the average Pakistani consumer.  

Pakistan's Real GDP: 

Vehicles and home appliance ownership data analyzed by Dr. Jawaid Abdul Ghani of Karachi School of Business Leadership suggests that the officially reported GDP significantly understates Pakistan's actual GDP.  Indeed, many economists believe that Pakistan’s economy is at least double the size that is officially reported in the government's Economic Surveys. The GDP has not been rebased in more than a decade. It was last rebased in 2005-6 while India’s was rebased in 2011 and Bangladesh’s in 2013. Just rebasing the Pakistani economy will result in at least 50% increase in official GDP.  A research paper by economists Ali Kemal and Ahmad Waqar Qasim of PIDE (Pakistan Institute of Development Economics) estimated in 2012 that the Pakistani economy’s size then was around $400 billion. All they did was look at the consumption data to reach their conclusion. They used the data reported in regular PSLM (Pakistan Social and Living Standard Measurements) surveys on actual living standards. They found that a huge chunk of the country's economy is undocumented.  

Pakistan's service sector which contributes more than 50% of the country's GDP is mostly cash-based and least documented. There is a lot of currency in circulation. According to the State Bank of Pakistan (SBP), the currency in circulation has increased to Rs. 7.4 trillion by the end of the financial year 2020-21, up from Rs 6.7 trillion in the last financial year,  a double-digit growth of 10.4% year-on-year.   Currency in circulation (CIC), as percent of M2 money supply and currency-to-deposit ratio, has been increasing over the last few years.  The CIC/M2 ratio is now close to 30%. The average CIC/M2 ratio in FY18-21 was measured at 28%, up from 22% in FY10-15. This 1.2 trillion rupee increase could have generated undocumented GDP of Rs 3.1 trillion at the historic velocity of 2.6, according to a report in The Business Recorder. In comparison to Bangladesh (CIC/M2 at 13%), Pakistan’s cash economy is double the size. Even a casual observer can see that the living standards in Pakistan are higher than those in Bangladesh and India. 

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Comments

Riaz Haq said…
India’s super growth journey high on debt

https://www.dailypioneer.com/2021/columnists/india---s-super-growth-journey-high-on-debt.html

India joins the world aiming for a super growth on a high debt and infra push for an economic panacea.

India’s heavy investment over Rs 233.08 lakh crore investment in infrastructure, including Rs 10,500-crore Jewar airport adjacent to Delhi, is officially expected to give a major boost to the economy.

India is not alone. The entire world is trying to do that. The result is hyper-growth in world debt to $226 trillion. In its 2021 Fiscal Monitor report, the IMF said India’s debt increased from 68.9 per cent of its GDP in 2016 to 89.6 per cent in 2020. It is projected to jump to 90.6 per cent in 2021 and then decline to 88.8 per cent in 2022, to gradually reach 85.2 per cent in 2026.

Jewar has accelerated a process of development in UP with an eye on the state elections. It may make this part of the National Capital Region one of the most crowded places inviting large number of migrants that may stretch local resources.

The severe crash in the stock market has added a new concern. The nation hopes to fly on expectations but airport projects, high altitude Himalayan development, large-scale tree felling and acquisition of farm lands raise ecological concerns. But a nation striving hard to come out of the Coronavirus pandemic is looking for faster development so that there is cash flow.

The Government expanded the ‘National Infrastructure Pipeline (NIP)’ to 7,400 projects. According to Department of Industry and internal Trade, 217 projects worth Rs. 1.10 lakh crore ($ 15.09 billion) were completed as of 2020. Through the NIP, the government invested $ 1.4 trillion in infrastructure development as of July 2021.

However, the more investment is made in infrastructure, the more the nation’s cost to deliver. Unless there is an overall growth in activities — from industry to agriculture — the benefits become expensive to afford.

The IMF says that constraints on financing are particularly severe for poorer countries. Noting that in 2020, fiscal policy proved its worth, IMF director for fiscal affairs Vitor Gasper says the increase in public debt in 2020 was fully justified by the need to respond to COVID-19 and its economic, social, and financial consequences. But the increase is expected to be one-off, he said. So how to bring down the debt is the question. Debt dynamics are driven by a strong contribution from nominal GDP growth, accompanied by a much more gradual reduction in the primary deficit, he said.

The IMF said risks to the fiscal outlook are elevated. This calls for India to review its policies. Let us not forget that the 2007-08 global meltdown followed an unsustainable financial behaviour.

The results would be high inflationary tendencies that would add to costs further and create an unstable global economy leading to more conflicts. India’s inflation has risen to 12.5 per cent. Prices are rising, wages too would be rising and a cycle of inflation may continue.

This is also being seen in a regime of high taxations and high penalties on cars and car uses across the country. The silliest is the clampdown on outside state registered vehicles in Bihar, and HSRP plates. These are ignored as small issues but these small things are making lives of people difficult. User charges are being recklessly increased. At some private railway stations, parking charges are going through the roof. Ostensibly, nobody can be blamed as ‘the prices are rising’ but that needs a holistic review.

The IMF projects growth at 9.5 per cent in FY2021-22 and 8.5 per cent in FY2022-23. Headline inflation sees elevated price pressures. The contraction in economic activity, lower revenue, and pandemic-related support measures are estimated to have led to a widening of the fiscal deficit to 8.6 and 12.8 per cent of GDP in FY2020-21 for the central and state governments, respectively.

Riaz Haq said…
India ranks 10th most indebted as a net debtor nation

https://en.wikipedia.org/wiki/List_of_debtor_nations_by_net_international_investment_position_per_capita

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Debtor Nation Definition

https://www.investopedia.com/terms/d/debtor_nation.asp

One major way in which America's status as a global debtor manifests visibly is the availability of inexpensive manufacturing capabilities in China, as more and more U.S.-based businesses spend vast amounts of money in China for that purpose. Another major contributor is the large amount of U.S. debt held by China in the form of Treasury bonds. Other debtor nations include Greece, Spain, Portugal, Brazil, and India.
Riaz Haq said…
Global debt jumps to $226 trillion, India’s dues projected to rise to 90.6% in 2021 — IMF

https://theprint.in/economy/global-debt-jumps-to-226-trillion-indias-dues-projected-to-rise-to-90-6-in-2021-imf/750218/

In its 2021 Fiscal Monitor report, the IMF said India’s debt increased from 68.9 per cent of its GDP in 2016 to 89.6 per cent in 2020. It is projected to jump to 90.6 per cent in 2021 and then decline to 88.8 per cent in 2022, to gradually reach 85.2 per cent in 2026.

Constraints on financing are particularly severe for poorer countries, Gasper said. Noting that in 2020, fiscal policy proved its worth, he said the increase in public debt, in 2020, was fully justified by the need to respond to COVID-19 and its economic, social, and financial consequences. But the increase is expected to be one-off, he said.

Gasper said debt is expected to decline this year and next by about 1 percentage point of GDP per year.
Riaz Haq said…
#Economic distress from #India’s #coronavirus #lockdowns has created a #hunger crisis. In the 2021 Global Hunger Index released in October, India ranked 101st of the 116 countries surveyed, falling seven spots from the previous year.- The Washington Post

https://www.washingtonpost.com/world/2021/12/06/india-hunger-coronavirus/


There are no nationwide numbers on the state of food insecurity in India, but recent studies point to an alarming problem. In the 2021 Global Hunger Index released in October, India ranked 101st of the 116 countries surveyed, falling seven spots from the previous year. In a separate 2020 survey by Azim Premji University in Bangalore, 90 percent of respondents reported a reduction in food intake due to the lockdown. Twenty percent of respondents continued to battle the problem even six months later.


The Indian government dismissed the Hunger Index ranking, saying that estimates used for the undernourished population were “devoid of ground reality” and that the report disregarded its “massive effort” during the pandemic. Oxfam India, in a statement, said the Hunger Index “unfortunately reflects the reality of the country where hunger [has been] accentuated since the covid-19 pandemic.”

India’s Ministry of Food and Public Distribution did not respond to requests for comment.

“The hunger crisis is, in fact, fundamentally reflective of the livelihood crisis,” said Jayati Ghosh, a development economist. People do not have money to buy food, she said, and “that’s both our employment and food systems failing.”

The unemployment rate in April to June of 2020, at the height of the first lockdown, was nearly 21 percent in urban areas, according to government figures. Even as the economy showed signs of revival this year, 15 million jobs were lost in May when a devastating second wave killed hundreds of thousands and brought the health-care system to near collapse.

Riaz Haq said…
According to the 1981 Indian Census, close to 99% of rural India defecated in the open. This meant that Indians defecate in open spaces such as in fields, bushes, along railway tracks and roads. According to data from the World Bank, in 1990, 75% of the Indian population defecated in the open, this had dropped to 44% in 2015. However, despite this drop poorer countries such as Bangladesh and Pakistan and even sub-Saharan countries have significantly lower open defecation rates



https://repository.upenn.edu/cgi/viewcontent.cgi?article=1016&context=mbds



Riaz Haq said…
In 1990s, #WorldBank data showed 75% of #India's population defecated in the open, It dropped to 44% in 2015. #Bangladesh & #Pakistan & even countries in sub-Saharan #Africa have significantly lower open defecation rates. #OpenDefecation #SwachhBharat
https://repository.upenn.edu/cgi/viewcontent.cgi?article=1016&context=mbds

https://twitter.com/haqsmusings/status/1467943903345012736?s=20
Riaz Haq said…
India’s International Investment Position (IIP), March 2021


https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51822

Today, the Reserve Bank released data relating to India’s International Investment Position as at end-March 2021.

Key Features of India’s IIP in March 2021

I. Quarterly Variations:

Net claims of non-residents on India increased by US$ 11.2 billion during Q4:2020-21 to US$ 352.7 billion in March 2021 (Table 1).

The increase in net claims was due to larger increase in foreign-owned assets in India (US$ 17.9 billion) vis-à-vis the overseas financial assets of Indian residents (US$ 6.7 billion) during the quarter.

Indian residents’ overseas financial assets abroad increased largely on the back the increase in overseas direct investment as well as currency and deposits.

Inward portfolio investment and loans were major contributors to the rise in India’s foreign liabilities.

Depreciation of the Indian rupee against the US dollar during the quarter contributed to changes in India’s liabilities, when valued in the US dollar terms.

Reserve assets accounted for over two-thirds of India’s international financial assets (Table 3).

Non-debt liabilities had 52.4 per cent share in India’s external liabilities (Table 4).

II. Annual Variations:

During 2020-21, non-residents’ net claims on India reduced by US $ 22.7 billion: increase in overseas assets of Indian residents (US$ 141.2 billion) exceeded the rise in foreign owned assets in India (US$ 118.5 billion) (Table 1).

The increase in international financial assets of Indian residents was led by a large accretion of US$ 99.2 billion in reserve assets; overseas direct investment and currency and deposits were the other major components.

Inward direct investment and portfolio equity investment together accounted for nearly 90 per cent of the increase in international financial liabilities during 2020-21.

The ratio of India’s international financial assets to international financial liabilities increased to 70.9 per cent in March 2021 from 65.6 per cent a year ago.

III. Ratio of International Financial Assets and Liabilities to GDP (at current prices):

The ratios of reserve assets, Indian residents’ overseas financial assets and claims of non-residents on India to GDP at current market prices surged during 2020-21, largely due to the decline in GDP during the year, caused by the COVID-19 pandemic (Table 2).

The ratio of net IIP of India to GDP also improved to (-) 13.1 per cent in March 2021 from (-) 13.9 per cent a year ago.

Riaz Haq said…
Pakistan's net international investment is -$121 billion in Q2/2021

https://www.sbp.org.pk/ecodata/Invest-BPM6.pdf


International Investment Position of Pakistan (BPM6) - Summary
(Stocks in Million US Dollar)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 (R) Q2 (P)
International investment position - Net (115,831.5) (116,404.7) (115,487.7) (114,657.2) (109,902.5) (113,434.9) (115,766.3) (117,725.0) (116,880.1) (120,622.4)
Riaz Haq said…
India remains far from being open defecation free after 7 years of Swachh Bharat Mission
Toilet usage on paper, not in practice

https://mediaindia.eu/society/70066-open-defecation-free/

At the end of 2020, the Swachh Bharat Mission claimed that over 99 pc rural households had access to a toilet and most villages had been declared open defecation free. But even in the places where the toilets have actually been built and provided to people, there have been numerous reports, in thousands, of people not being able to use them due to several practical problems. First and foremost, lack of water to clean the toilet after usage. And even where water may not be a problem, there are other basic issues which show that the Swachh Bharat Abhiyan was meant more to be on paper than in practice.

“Everyone here has toilet facilities, the state government has launched a scheme in which they provided all the necessary basic requirements like cement, bricks and sand free of cost and people got a chance to build their own private toilets. In the beginning, we were glad to use our own private toilets, but had to stop within a few weeks as the septic tanks provided by the government were too small and could fill up soon and we don’t know how to clean them and it will expensive to get it cleaned by someone. So, since then we have stopped using our toilets, except for emergencies, and we have all started to go back into the near-by forest to defecate,” Shanthi, 39, resident of Pasar, a small village in Kallakurichi district in Tamil Nadu tells Media India Group.

Shanthi is not alone in her thinking and her precautious behaviour about using the private toilet. Human rights activist and National Convenor of the Safai Karmachari Andolan (SKA) Bezwada Wilson says the issue is widespread and needs to be tackled in a comprehensive manner and the answer to the question of large-scale open defecation in India did not lie in simply building toilets, without the necessary infrastructure like providing freely flowing water and sewage connections to each house.

“Women are coming outside to defecate because of various reason although many have access to toilets. The major problem behind this is, in rural areas there are no adequate water facilities and they also afraid that if once septic tank gets filled up, what will be the mechanism to clean and they have to invest money to clean,” Wilson tells Media India Group.

Riaz Haq said…
India’S Current Account Deficit Expected To Hit 1.4% By March As Crude Soars

https://www.cnbctv18.com/economy/indias-current-account-deficit-expected-to-hit-14-by-march-as-crude-soars-report-11424022.htm

India's widening current account deficit (CAD), driven by the massive spike in commodity prices led by crude oil, is set to put pressure on the fragile recovery, warns a brokerage report that has revised upwards its CAD forecast to USD 45 billion or 1.4 percent of GDP by March. According to a report by British brokerage Barclays, the worries arise from the fact that the trade deficit has been jumping continuously since July.
From an average monthly trade deficit of USD 12 billion till June, it has jumped to USD 16.8 billion in July-October, with September showing the highest-ever trade deficit on record at USD 22.6 billion, the report said. "We raise our FY22 current account deficit forecast to USD 45 billion or 1.4 percent of GDP, up from USD 35 billion earlier, but a large balance of payments (BoP) surplus remains on track," it said, adding that the widening trade deficit can prove more sustained than initially thought.
Estimating that every USD 10 per barrel rise in global crude priceswill widen the trade deficit by USD 12 billion or 35 bps of GDP, as close to 85 percent of the oil demand is met through imports, and given the current elevated crude prices, the brokerage has raised its current account deficitforecast to USD 45 billion for FY22, from USD 35 billion earlier. The brokerage, however, ruled out an alarming situation and said that with record high foreign reserves, "we see no major risks to macro stability." It noted that the widening deficit trend may continue for some time as a combination of demand recovery and rising commodity prices will continue to widen the trade deficit sharply.
Riaz Haq said…
This comment has been removed by the author.
Riaz Haq said…
India runs perennial trade deficits. Unlike China's, India's US$ reserves are not built by trade surpluses. India is heavily dependent on foreign debt and direct and portfolio investments for its US$ reserves.

As long the West sees India as a useful counterweight to China, the western money will continue to flow into India.

Here are a couple of excerpts from The Hindu Businessline on this subject:

https://www.thehindubusinessline.com/opinion/the-flip-side-to-building-forex-reserves/article35526054.ece

"Ample reserves are a source of comfort, but there are costs in managing them as well as risks due to debt and hot money flows"


"In BoP parlance, capital flows include equity flows (mainly foreign direct investment and portfolio investment) and debt flows (essentially consist of external commercial borrowing or ECB, NRI deposits, trade credit and portfolio debt investment). As per the IIP, debt liabilities account for nearly 48 per cent and carry the risk of debt service (repayment and interest payment). Portfolio equity investments are known as “hot” money or speculative money and as on March 2021, these flows accounted for 23 per cent of total liabilities. Thus, the forex reserves build-up has the potential risks of growing debt liabilities and facing the vagaries of “hot” money"
Riaz Haq said…
Budget 2021-22: Minimum wage increased from Rs17,500 to Rs20,000
Salaries and pensions increased by 10%

https://www.samaa.tv/money/2021/06/budget-2021-22-minimum-wage-increased-from-rs17500-to-rs20000/

The government has increased the minimum wage from Rs17,500 per month to Rs. 20,000.

Federal Finance Minister Shaukat Tarin on Friday presented the budget for the next financial year 2021-22.

Introducing the budget, the Finance Minister said that low-income earners have been affected more by inflation. In order to reduce the burden of inflation, the minimum wage has been increased from Rs. 17,500 to Rs20,000 per month.

The finance minister said that the salaries of government employees are being increased by 10% and the pensions of retired employees will be increased by 10% from July 1.

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In purchasing power parity terms, one PPP US$ is equal to about PKR 40.

So Rs 20,000 per month minimum wage translates to $500 in PPP terms.
Riaz Haq said…
India’s Stalled Rise: As the #COVID19 #pandemic spread in 2020, #India's #economy withered, shrinking by more than seven percent, the worst performance among major developing countries. Reversing a long-term downward trend, #poverty increased substantially https://www.foreignaffairs.com/articles/india/2021-12-14/indias-stalled-rise

INDIA’S LOST DECADE
To answer the question of whether India is back, it is important to first understand when and why India went away. The answer lies in plans that went badly wrong. During the boom years after the turn of the millennium, Indian firms invested heavily, on the assumption of continued rapid growth. So when the financial crisis brought the boom to an end, causing interest rates to soar and exchange rates to collapse, many large companies found it difficult to repay their debts. As companies began to default, banks were saddled with nonperforming loans, exceeding ten percent of their assets.

In response, successive governments launched initiative after initiative to address this “twin balance sheet” problem, initially asking banks to postpone repayments, later encouraging banks and firms to resolve their problems through an improved bankruptcy system. These measures gradually alleviated the debt problem, but they still left many firms too financially feeble to invest and banks reluctant to lend. And with lackluster investment and exports, the economy was unable to recover its former dynamism.



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As growth slowed, other indicators of social and economic progress deteriorated. Continuing a long-term decline, female participation in the labor force reached its lowest level since Indian independence in 1948. The country’s already small manufacturing sector shrank to just 13 percent of overall GDP. After decades of improvement, progress on child health goals, such as reducing stunting, diarrhea, and acute respiratory illnesses, stalled.

And then came COVID-19, bringing with it extraordinary economic and human devastation. As the pandemic spread in 2020, the economy withered, shrinking by more than seven percent, the worst performance among major developing countries. Reversing a long-term downward trend, poverty increased substantially. And although large enterprises weathered the shock, small and medium-sized businesses were ravaged, adding to difficulties they already faced following the government’s 2016 demonetization, when 86 percent of the currency was declared invalid overnight, and the 2017 introduction of a complex goods and services tax, or GST, a value-added tax that has hit smaller companies especially hard. Perhaps the most telling statistic, for an economy with an aspiring, upwardly mobile middle class, came from the automobile industry: the number of cars sold in 2020 was the same as in 2012.

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Adding to a decade of stagnation, the ravages of COVID-19 have had a severe effect on Indians’ economic outlook. In June 2021, the central bank’s consumer confidence index fell to a record low, with 75 percent of those surveyed saying they believed that economic conditions had deteriorated, the worst assessment in the history of the survey.

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Disaffection is also manifest in politics. The national government in New Delhi has been bickering with the country’s state governments for more than a year over the sharing of revenue from the GST. Several states have imposed new residency requirements on job seekers over the past two years, thus directly challenging the principle of a common national labor market. There has also been a revival of the policy of “reservation,” India’s version of affirmative action, in which some jobs are reserved for people from traditionally disadvantaged social groups.
Riaz Haq said…
#India's #economy growing fast but problems remain: November inflation 14.23%. #Fuel and #energy prices rose nearly 40% last month. Urban #unemployment – most of the better-paying jobs are in cities – has been moving up since September and is now above 9%. https://aje.io/ytyan4

That will not be easy, say experts. The pandemic has devastated India’s micro, small and medium enterprises (MSMEs), which contribute 30 percent of the nation’s GDP as well as half of the country’s exports and represent 95 percent of its manufacturing units.

The government of Prime Minister Narendra Modi told Parliament in December that a survey it had conducted suggested that 9 percent of all MSMEs had shut down because of COVID-19. And that might be just the tip of the iceberg. In May, another survey of more than 6,000 MSMEs and startups found that 59 percent were planning to shut shop, scale down or sell before the end of 2021.


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Baldev Kumar threw his head back and laughed at the mention of India’s resurgent GDP growth. The country’s economy clocked an 8.4-percent uptick between July and September compared with the same period last year. India’s Home Minister Amit Shah has boasted that the country might emerge as the world’s fastest-growing economy in 2022.

Kumar could not care less.

As far as he was concerned, the crumpled receipt in his hand told a different story: The tomatoes, onions and okra he had just bought cost nearly twice as much as they did in early November. The 47-year-old mechanic had lost his job at the start of the pandemic. The auto parts store he then joined shut shop earlier this year. Now working at a car showroom in the Bengaluru neighbourhood of Domlur, he is worried he might soon be laid off as auto sales remain low across India.

He has put plans for his daughter’s wedding on hold, unsure whether he can foot the bill. He used to take a bus to work. Now he walks the five-kilometre (three-mile) distance to save a few rupees. “I don’t know which India that’s in,” he said, referring to the GDP figures. “The India I live in is struggling.”

Kumar wasn’t exaggerating – even if Shah’s prognosis turns out to be correct.

Asia’s third-largest economy is indeed growing again, and faster than most major nations. Its stock market indices, such as the Sensex and Nifty, are at levels that are significantly higher than at the start of 2021 – despite a stumble in recent weeks. But many economists are warning that these indicators, while welcome, mask a worrying challenge – some describe it as a crisis – that India confronts as it enters 2022.

November saw inflation rise by 14.23 percent, building on a pattern of double-digit increases that have hit India for several months now. Fuel and energy prices rose nearly 40 percent last month. Urban unemployment – most of the better-paying jobs are in cities – has been moving up since September and is now above 9 percent, according to the Centre for Monitoring Indian Economy, an independent think-tank. “Inflation hits the poor the most,” said Jayati Ghosh, a leading development economist at New Delhi’s Jawaharlal Nehru University.

All of this is impacting demand: Government data shows that private consumption between April and September of 2021 was 7.7 percent lower than in 2019-2020. The economic recovery from the pandemic has so far been driven by demand from well-to-do sections of Indian society, said Sabyasachi Kar, who holds the RBI Chair at the Institute of Economic Growth. “The real challenge will start in 2022,” he told Al Jazeera. “We’ll need demand from poorer sections of society to also pick up in order to sustain growth.”


Riaz Haq said…
#India #Unemployment: Modi gov't said in December that 9% of all MSMEs had shut down because of #COVID19. In May, another survey of over 6,000 MSMEs and startups found that 59% were planning to shut shop, scale down or sell before the end of 2021. #economy https://aje.io/ytyan4

Baldev Kumar threw his head back and laughed at the mention of India’s resurgent GDP growth. The country’s economy clocked an 8.4-percent uptick between July and September compared with the same period last year. India’s Home Minister Amit Shah has boasted that the country might emerge as the world’s fastest-growing economy in 2022.

Kumar could not care less.

As far as he was concerned, the crumpled receipt in his hand told a different story: The tomatoes, onions and okra he had just bought cost nearly twice as much as they did in early November. The 47-year-old mechanic had lost his job at the start of the pandemic. The auto parts store he then joined shut shop earlier this year. Now working at a car showroom in the Bengaluru neighbourhood of Domlur, he is worried he might soon be laid off as auto sales remain low across India.

He has put plans for his daughter’s wedding on hold, unsure whether he can foot the bill. He used to take a bus to work. Now he walks the five-kilometre (three-mile) distance to save a few rupees. “I don’t know which India that’s in,” he said, referring to the GDP figures. “The India I live in is struggling.”

Kumar wasn’t exaggerating – even if Shah’s prognosis turns out to be correct.

Asia’s third-largest economy is indeed growing again, and faster than most major nations. Its stock market indices, such as the Sensex and Nifty, are at levels that are significantly higher than at the start of 2021 – despite a stumble in recent weeks. But many economists are warning that these indicators, while welcome, mask a worrying challenge – some describe it as a crisis – that India confronts as it enters 2022.

November saw inflation rise by 14.23 percent, building on a pattern of double-digit increases that have hit India for several months now. Fuel and energy prices rose nearly 40 percent last month. Urban unemployment – most of the better-paying jobs are in cities – has been moving up since September and is now above 9 percent, according to the Centre for Monitoring Indian Economy, an independent think-tank. “Inflation hits the poor the most,” said Jayati Ghosh, a leading development economist at New Delhi’s Jawaharlal Nehru University.

All of this is impacting demand: Government data shows that private consumption between April and September of 2021 was 7.7 percent lower than in 2019-2020. The economic recovery from the pandemic has so far been driven by demand from well-to-do sections of Indian society, said Sabyasachi Kar, who holds the RBI Chair at the Institute of Economic Growth. “The real challenge will start in 2022,” he told Al Jazeera. “We’ll need demand from poorer sections of society to also pick up in order to sustain growth.”


-------------

“The decimation of MSMEs is why we’re seeing core inflation, and we should be very worried,” said economist Pronab Sen, former chief statistician of India, referring to an inflation measure that leaves out food and energy because of their volatile price shifts. India’s core inflation stood at more than 6 percent in October. The level of competition in the market has also dramatically shrunk, he said. “Pricing power has shifted to a small number of large companies,” Sen told Al Jazeera. “And it is their exercise of this power that is leading to core inflation.”

When fuel prices rise globally – and subsequently in India – some inflation is unavoidable. But a competitive market usually forces companies to absorb much of that burden in their margins. Without that competition, Sen said, it is easier for firms to pass more of the increased costs on to consumers.

MSMEs have long been the backbone of the Indian labour market, employing 110 million people. Their struggles are a key reason for India’s failure to reduce unemployment rates, Sen added.

Riaz Haq said…
India's economy has some bright spots, a number of very dark stains: Raghuram RajanRajan said that one way to expand budgetary resources is through asset sales, including parts of government enterprises and surplus government land

Read more at: https://www.deccanherald.com/national/indias-economy-has-some-bright-spots-a-number-of-very-dark-stains-raghuram-rajan-1073755.html


The Indian economy has "some bright spots and a number of very dark stains" and the government should target its spending "carefully" so that there are no huge deficits, noted economist and former RBI Governor Raghuram Rajan said on Sunday. Known for his frank views, Rajan also said the government needs to do more to prevent a K-shaped recovery of the economy hit by the coronavirus pandemic. Generally, a K-shaped recovery will reflect a situation where technology and large capital firms recover at a far faster rate than small businesses and industries that have been significantly impacted by the pandemic. "My greater worry about the economy is the scarring to the middle class, the small and medium sector, and our children's minds, all of which will come into play after an initial rebound due to pent up demand. One symptom of all this is weak consumption growth, especially for mass consumption goods," Rajan told PTI in an e-mail interview.


Rajan, currently a Professor at the University of Chicago Booth School of Business, noted that as always, the economy has some bright spots and a number of very dark stains. "The bright spots are the health of large firms, the roaring business the IT and IT-enabled sectors are doing, including the emergence of unicorns in a number of areas, and the strength of some parts of the financial sector," he said. On the other hand, "dark stains" are the extent of unemployment and low buying power, especially amongst the lower middle-class, the financial stress small and medium-sized firms are experiencing, "including the very tepid credit growth, and the tragic state of our schooling". Rajan opined that Omicron is a setback, both medically and in terms of economic activity but cautioned the government on the possibility of a K-shaped economic recovery. "We need to do more to prevent a K shaped recovery, as well as a possible lowering of our medium-term growth potential," he said.

--------

Regarding the rising inflationary trends, Rajan said inflation is a concern in every country, and it would be hard for India to be an exception. According to him, announcing a credible target for the country's consolidated debt over the next five years coupled with the setting up of an independent fiscal council to opine on the quality of the budget would be very useful steps. "If these moves are seen as credible, the debt markets may be willing to accept a higher temporary deficit," he said.
Riaz Haq said…
Chitra Ramkrishna, #India's $4 trillion #StockMarket #NSE CEO, let a faceless #Hindu conman ‘yogi’ make all key decisions. For all this, SEBI’s punishment to Ramkrishna is paltry. She has now been barred from capital markets for three years. #Modi #BJP https://www.thehindubusinessline.com/markets/stock-markets/inside-the-mind-of-chitra-ramkrishna-she-took-guidance-from-an-unknown-himalayan-yogi-to-run-nse/article65037214.ece

Ramkrishna referred to the unknown yogi as “Sironmani” [the exalted one] and shared with him information such as NSE’s five year projections, financial data, dividend ratio, business plans, agenda of board meeting, and even consulted him on employee performance appraisals.

Ramkrishna was ousted from NSE in 2016 for her role in the co-location and algo trading scam and abuse of power in the appointment of Subramanian. The probe found that Ramkrishna ran NSE with impunity. No one from the senior management, board, or the promoters — which include big government institutions and banks — ever objected to her ways. Instead, Ramkrishna was given ₹44 crore as pending dues and salary when she left NSE.

SEBI’s probe revealed that Ramkrishna communicated with the yogi, whom she had never met, over email, for almost 20 years and he guided her to appoint Subramanian as the second in command at NSE. “Their spiritual powers do not require them to have any such physical coordinates and would manifest at will,” Ramkrishna told SEBI. The contents of the email were not denied by her.

On January 18, 2013, Subramanian was offered the role of Chief Strategic Advisor at NSE for an annual compensation of ₹1.68 crore against his last drawn salary (as per his claim) of ₹15 lakh at Balmer Lawrie. In March 2014, Ramkrishna approved a 20 per cent increment to Subramanian and his salary was revised to ₹2.01 crore. Five weeks thereafter, Subramanian’s salary was again revised upwards by 15 per cent to ₹2.31 crore as Ramkrishna dubbed his performance to be A+ (exceptional). By 2015, his cost-to-company had zoomed to ₹5 crore, he was given a cabin next to Ramkrishna and granted first-class international air travel. All this was in accordance with the yogi’s instructions.

An email from the unknown yogi even carried the diktat that Subramanian be exempt from the contractual 5-day work week and instead be asked to come only for three days and allowed to work the rest of the time at will.

Another email on September 5, 2015, from the yogi told Ramkrishna, “SOM, if I had the opportunity to be a person on Earth then Kanchan is the perfect fit. Ashirvadhams.” On December 30, 2015, Ramkrishna told the Yogi in her reply, “SIRONMANI, struggle is I have always seen THEE through G, and challenged myself to on my own realise the difference.” ‘SOM’ refers to Ramkrishna, and ‘Kanchan’ and ‘G’ refer to Subramanian, the SEBI probe revealed.

These findings were confirmed by Dinesh Kanabar, the then Chairman of NSE nomination and remuneration committee. Subramanian had all the powers of the MD and CEO, and was flying first class, but remained a consultant on paper. SEBI had observed that there was a glaring conspiracy of a money making scheme involving NSE’s boss with the unknown person.

An email dated February 18, 2015, from Ramkrishna to the unknown yogi, reads, “The role and designation of Group Chief Coordination Officer is fine and we could take that forward. I have a small submission, can we make this as Group President and Chief Coordination Officer? And over a time frame as you direct we can move the entire operations of the exchange under G and redesignate him as Chief Operating Officer? Seek Your guidance on the path forward on this Swami If this meets with your Highness’ approval, then parallelly could we coin JR (Ravi) as Group President Finance and stakeholder relations and Corporate General Counsel?”
Riaz Haq said…
Why 7% growth is miracle and 5% reality for India's economy - Times of India

https://timesofindia.indiatimes.com/business/india-business/for-india-the-reality-of-5/articleshow/89706607.cms


------------

5% growth amid de-globalisation to be significant achievement for India, says Ruchir Sharma

https://www.cnbctv18.com/economy/oil-breaches-100-for-first-time-since-2014-on-ukraine-attacks-12608582.htm

Morgan Stanley Chief Global Strategist Ruchir Sharma on Saturday said if the Indian economy grows at 5 percent in the era of deglobalization, then it will be a significant achievement.

Addressing the FICCI Annual Convention, Sharma further said India hastily passed agriculture and labour reforms during the COVID-19 pandemic.
"Our expectations have to be realistic...if we can grow at more than 5 percent in a year, that is a significant achievement," he said.
Sharma also noted that it is no longer feasible in the world of deglobalisation to grow at 7 percent as exports cannot grow at 20 percent or 30 percent in a year, which was good in an era of globalisation.
"So, for an economy like India's, the growth rate of 5 percent will be pretty credible even in this era where I think emerging economies, in general, will make some sort of a comeback," he added.
Sharma pointed out that there were about 100 economies that were growing at 7 percent or more in 2007.
"That has never happened in the history of the global economy. In the last decade, only 10 economies in the world have grown 7 percent or more in any year," he said.
Sharma also argued that if the population growth of a country is slowing, then that country can't grow at the same pace as it did in the past.
According to the RBI, the Indian economy is likely to contract by 7.5 percent, in 2020-21.
He also pointed out that intra regional trade is the lowest in South Asia compared to any subregion of the world.
Sharma pointed out that India has seen a slight increase in exports since 2010.
"The last decade was a lost decade for emerging economies. The only economy to have gained in the global share in the last decade was China," he noted.


Riaz Haq said…
#India's 2022 #GDP Growth Cut to 4.6% Due to #Ukraine War. India will face restraints on several fronts: #energy access & prices, primary commodity bottlenecks, reflexes from #trade sanctions, #food #inflation, tightening policies & financial instability.
https://thewire.in/economy/indias-2022-gdp-growth-downgraded-to-4-6-due-to-ukraine-war-un-report


United Nations: India’s projected economic growth for 2022 has been downgraded by over 2% to 4.6% by the United Nations, a decrease attributed to the ongoing war in Ukraine, with New Delhi expected to face restraints on energy access and prices, reflexes from trade sanctions, food inflation, tightening policies and financial instability, according to a UN report released on Thursday.

The UN Conference on Trade and Development (UNCTAD) report downgraded its global economic growth projection for 2022 to 2.6% from 3.6% due to shocks from the Ukraine war and changes in macroeconomic policies that put developing countries particularly at risk.

The report said while Russia will experience a deep recession this year, significant slowdowns in growth are expected in parts of Western Europe and Central, South and South-East Asia.

India was forecast to grow at 6.7% in 2022 and this projection has been downgraded to 4.6% by UNCTAD.

The report said as some of the other economies in South and Western Asia may gain some benefits from fast growth of demand and prices of energy, they will be hampered by the adversities in primary commodity markets, especially food inflation, and will be further hit by inherent financial instabilities.



India in particular will face restraints on several fronts: energy access and prices, primary commodity bottlenecks, reflexes from trade sanctions, food inflation, tightening policies and financial instability, it said.

The report has downgraded the GDP growth of the US from 3% to 2.4%. China will also see growth decrease to 4.8% from 5.7%. The report projects a deep recession for Russia, with growth decelerating from 2.3% to -7.3%.

The report said the Russian economy faces stringent external constraints imposed by the sanctions.

While Russia is still exporting oil and gas, and will therefore see compensating increases of revenue due to high prices, sanctions severely limit the use of foreign exchange earnings for the purchase of imports or debt servicing.

Russia will experience severe shortages of a wide range of imported goods, high inflation and a substantially devalued currency. While the state will likely act to cushion the shock and limit unemployment and the fall of household incomes, its capacity is limited.

Trade with China and some other partners will continue, but they will not be able to provide substitutes for the wide range of imported goods that the Russian Federation currently cannot access. Assuming the sanctions remain in place through 2022, even if the fighting in Ukraine ends, Russia will experience a severe recession, it said.

The report noted that a number of developing country central banks also engaged in quantitative easing: active purchasing of bonds in the open market.

A small number of developing country central banks engaged in private sector bond purchases, but public bond buying was more widespread: the central banks of India, Thailand, Colombia and South Africa, among others, engaged in public bond purchases.

In the global monetary hierarchy, the place of a national currency today is determined less by the size of its domestic production base than by the size of its domestic financial sector.

The currencies of Brazil, Russia, India and China account for no more than 3.5% of the $6.6 trillion daily turnover in the forex markets, a ratio barely one-tenth of the United States dollar’s 44%, it said.

UNCTAD said the ongoing war in Ukraine is likely to reinforce the monetary tightening trend in advanced countries following similar moves that began in late 2021 in several developing countries due to inflationary pressures, with expenditure cuts also anticipated in upcoming budgets.
Riaz Haq said…
#India #currency in circulation up 9.9% to over ₹31 lakh crore in FY22. Share of ₹500 and ₹2,000 notes together rose to 87.1% of total value of banknotes in circulation, despite #Modi's #DigitalIndia and #fintech. #Demonetization #BJP https://www.fortuneindia.com/macro/currency-in-circulation-up-99-to-over-31-lakh-cr-in-fy22-rbi/108369

The value and volume of banknotes in circulation increased by 9.9% and 5%, respectively, at ₹31,05,721 crore and 13.05 lakh, respectively, the Reserve Bank of India's annual report for 2021-22 shows. Comparatively, the increase in currency in circulation (both value and volume terms) was 16.8% and 7.2%, respectively, during 2020-21.

The rise in banknotes in circulation, despite the government's push for digital India and various reforms in the banking and fintech industry, has been attributed to "the second wave of COVID-19 pandemic, which induced renewed restrictions on movement in various parts of the country”.

The RBI supplies banknotes in denominations of ₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500 and ₹2,000, while coins comprise 50 paise and ₹1, ₹2, ₹5, ₹10 and ₹20 denominations.The share of ₹500 banknotes, both in value and volume, increased during 2021-22 as compared to the previous year. However, the ₹2,000 banknote share continued to dip in both value and volume.In value terms, the share of these banknotes together accounted for 87.1% of the total value of banknotes in circulation as of March 31, 2022, against 85.7% on March 31, 2021.In volume terms, ₹500 notes constituted the highest share at 34.9%, followed by ₹10 denomination at 21.3% of the total currency in circulation as of March 31, 2022.The total value of coins in circulation rose 4.1% to ₹27,970 crore in 2021-22, while its volume grew 1.3% to 12,46,298.As of March 31, 2022, the coins of ₹1, ₹2 and ₹5 together constituted 83.5% of the total volume of coins in circulation, while in value terms, these denominations accounted for 75.8%.The currency issuance (both banknotes and coins) and its management are performed by the RBI through its issue offices, currency chests and small coin depots spread across the country.As of March 31, 2022, the State Bank of India accounted for the highest share of 53.6% in the currency chests network. The indent of banknotes was lower by 1.8% in 2021-22 than that of a year ago. The supply of banknotes was also marginally lower by 0.4% during the said year than the previous year.During 2021-22, the indent and supply of coins saw a huge drop at 73.3% and 73%, respectively, from the previous year.The RBI data shows that the year 2021-22 saw an 88.4% rise in the disposal of soiled banknotes as compared to the previous year at 1,878.01 crore pieces vs 997.02 crore pieces during the previous year.During the fiscal year 2021-22, of the total fake currency notes detected in the banking sector, 6.9% were detected at the RBI and 93.1% by other banks.Compared to the previous year, there was an increase of 16.4 per cent, 16.5 per cent, 11.7 per cent, 101.9 per cent and 54.6 per cent in the counterfeit notes detected in the denominations of ₹10, ₹20, ₹200, ₹500 (new design) and ₹2,000, respectively.Overall, the RBI spent ₹4,984.8 crore on security printing from April 1, 2021, to March 31, 2022, against ₹4,012.1 crore in the previous year (July 1, 2020, to March 31, 2021).
Riaz Haq said…
#Indian startups laid off over 10,000 #employees in the first 6 months of 2022. At least 27 startups fired workers across #India. As investors put pressure on #startups in India to cut costs, employees are collateral damage. #Ola #Blinkit #Modi #BJP https://qz.com/india/2181236/ola-blinkit-and-others-laid-off-10000-employees-in-2022/


In a widely-circulated 2020 memo, marquee investor Sequoia had warned portfolio companies to keep their staffing levels sustainable. US-based startup accelerator, Y Combinator, also asked founders of its portfolio companies to “plan for the worst.”

The startups, though, seem to have botched it up. They have mostly cited cost-cutting and extended cash runways as reasons for slashing headcount. Macroeconomic uncertainties surely didn’t help.

“War in Europe, impending recession fears, and Fed rate hikes have led to inflationary pressures with massive correction in stocks globally and in India as well,” Vamsi Krishna, CEO of e-learning platform Vedantu, wrote in a May 18 blogpost. “Given this environment, capital will be scarce for upcoming quarters.”

There are myriad other ways to curb spending—a hiring freeze, curtailed marketing, saving on real estate—but laying off is evidently quick and easy. This is particularly so at tech startups which typically tend to over-hire while business is brisk.

Worryingly, the correction is far from over. Experts estimate that the layoff count will rise to 60,000 in the next six-to-nine months.

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