Thin ROTIs for India's Progress: Why Efficiency, Not Indulgence, Is The Key
India stands at a pivotal crossroads in its journey towards becoming a developed nation. As the world’s fifth-largest economy, its trajectory is scrutinised globally. But what does India need the most at this juncture?
Borrowing an intriguing analogy, the nation requires the discipline of “thin, efficient gol rotis” over the indulgence of “parathas and kulchas, " symbolising procrastination and inefficiency.
In order to realise its ambition of becoming a global powerhouse, India must focus on "Return on Time Invested" (ROTI). A principle emphasising the value of time in driving results.
This isn’t just about faster processes; it's about creating systems where every second counts. Whether it's defence preparedness, infrastructure projects, or financial innovation, precision and timeliness must reign supreme.
In this latest newsletter, we will discuss where India is heading post-festive season, and what factors will prove to be the protagonist for this new economic story.
A Period of Underperformance: Quarterly Results Reflect Larger Challenges
The corporate sector has sent shockwaves through the markets as major companies fall short of earnings expectations. Two-thirds of the Nifty 50 companies missed their Q2 projections, dragging the FY25 earnings growth forecast below 10%, down from a robust 15%.
Paired with high valuations, weak corporate earnings have diminished the appeal of Indian equities. While the S&P 500 has risen by 20.45% year-to-date, the Nifty 50 lags at a modest 10.36%, showing a stark reminder of domestic challenges.
Moreover, the Indian rupee has been facing intense short-term pressure, hovering around 84-84.5 per US dollar. Despite the Reserve Bank of India (RBI) holding over $675 billion in foreign reserves, the rupee hit record lows, weighed down by foreign portfolio investor (FPI) outflows and a robust US dollar.
The tide may turn in FY25, with projected net FPI inflows of $20-25 billion. However, the rising trade deficit offsets optimism, with only robust service exports and remittances maintaining Current Account Deficit (CAD) stability.
Automobiles and Consumption: A Mixed Bag of Festive Cheer and Worrying Trends
The automobile sector paints a tale of contrasts. From May to September, consumer demand slumped, especially in two-wheelers and passenger vehicles.
However, October brought festive cheer as two-wheeler sales surged by 36% and cars and SUVs showed 33% year-over-year. Even commercial vehicles and three-wheelers saw significant growth, although tractor sales continued to struggle.
Yet, wholesale volumes reveal a broader slowdown. Passenger vehicle wholesales are sluggish, reflecting weak dealership purchases. Rural demand is a rare bright spot, bolstered by a favourable monsoon season. However, whether this uptick signals a long-term recovery or a fleeting respite remains unclear.
Urban demand, meanwhile, faces a stark reality check. Rising inflation and stagnant incomes have left urban consumers grappling with stretched budgets. FMCG major Britannia reports metropolitan areas, contributing 30% of FMCG sales, are driving a significant share of the decline. Inflation, particularly food inflation and housing prices, could be the top factors behind this pullback.
The Inflation Squeeze: A Growing Concern for Households
October 2024 saw India’s Consumer Price Index (CPI) inflation spike to 6.2%, a 14-month high. Core inflation, which excludes volatile food and fuel prices, reached a 10-month peak.
Persistent food inflation, especially in vegetables and fruits. It has further tightened household budgets. While good monsoons bring hope for easing prices, regional disparities in rainfall, notably in Punjab and Haryana, raise concerns about agricultural yields.
This inflationary environment has amplified the cost-of-living crisis for urban households, many of whom haven’t seen meaningful wage growth. Consequently, spending across sectors, from FMCG to discretionary goods, has slowed considerably.
The Cost of Borrowing: Personal Loans & Monetary Policy
The squeeze on disposable income has cascaded into India’s lending landscape. Personal loans, particularly for consumer durables like electronics and furniture, are seeing a marked slowdown.
The RBI’s series of interest rate hikes since April 2022, raising the benchmark rate from 4% to 6.5%, has made borrowing more expensive, further curbing consumer appetite.
In November 2023, the RBI tightened rules for unsecured lending, raising risk weights for banks and NBFCs. This move effectively increased borrowing costs, adding another hurdle for consumers already facing inflationary pressures.
Consumer Sentiments & Future Prospects
Despite these headwinds, Indian households remain cautiously optimistic. The RBI’s consumer confidence survey shows a rise in the Current Situation Index (96.6) and Future Sentiment Index (121.4).
This suggests that while consumers are holding back today, they are hopeful for better times ahead, a potential signal that the current slowdown may be cyclical rather than structural.
India’s eight core industries - cement, crude oil, steel, fertilisers, and others are facing sluggish growth. The core sector index grew by 2% in September 2024, its weakest performance in two years. Industrial production followed suit, with a modest 3.1% growth in September, weighed down by lacklustre electricity output (0.5% growth) and uneven manufacturing recovery.
The sector’s underperformance raises alarms, as these industries are tightly linked to broader economic activity. When foundational sectors lag, it often signals deeper economic challenges ahead.
Meanwhile, consumer goods production hit a four-month high in September, growing by 3.9%. Yet, this increase in output contrasts sharply with declining sales. A paradox reflecting subdued demand. Even as manufacturers ramp up production, consumer wallets remain closed, highlighting a disconnect between supply-side optimism and demand-side realities.
Energy Usage: A Barometer of Economic Momentum
Diesel and electricity consumption are cornerstone indicators of economic activity. Diesel powers transport, agriculture, and industry, while electricity fuels almost every sector. Yet, recent trends reveal a slowdown in their usage.
Together, these trends hint at shifting dynamics in India’s growth trajectory and warrant closer observation.
Manufacturing PMI: A Glimpse of Recovery Amid Challenges
After a sluggish stretch, India’s manufacturing sector showed signs of revival in October. The Purchasing Managers’ Index (PMI), a trusted indicator of sectoral health, climbed back into positive territory.
What Drives the Rebound?
However, rising input costs and margin pressures loom large. With inflation driving up expenses for raw materials, labour, and logistics, manufacturers must navigate profitability concerns carefully.
GST & E-Way Bills
GST collections in October hit ?1.87 lakh crore, a robust 9% year-on-year increase. This uptick reflects resilient consumer spending and healthy business activity, even amid challenges in key industries like automotive and manufacturing.
E-way bill generation surged to a record 11.7 crore, growing nearly 19% year-on-year. These digital documents, vital for tracking goods movement, underline robust supply chain activity - an encouraging sign of thriving trade during the festive season.
Many e-way bills show that goods are moving actively across the country. This means trade is healthy, and supply chains are working well. These signs are encouraging for the economy.
Rural India: A Story of Contrasts
Applications under the MGNREGA scheme dropped by 9.2% in October compared to last year, marking a consistent decline over the past year. This suggests better employment opportunities in rural areas, buoyed by favourable monsoons and rising agricultural activity.
While rural wages have increased, high inflation, particularly in essentials like food and fuel has eroded purchasing power. For many, real income gains remain elusive, highlighting the need for sustained wage growth and inflation control.
India’s economic narrative is one of contrasts. On the one hand, robust GST and e-way bill collections, coupled with manufacturing PMI recovery, signal resilience. On the other hand, slowdowns in transportation metrics, diesel consumption, and rural wage challenges point to underlying vulnerabilities.
Moreover, October’s inflation surge to a 14-month high complicates the Reserve Bank of India’s policy approach. With inflation hovering above comfort levels, rate cuts remain off the table, adding pressure on both consumers and businesses.
The Road Ahead: Balancing Optimism and Challenges
Several indicators will shape the economic outlook:
Consumer sentiment surveys offer a glimmer of hope, showing optimism about prospects. Whether this translates into sustained economic momentum will depend on how effectively India navigates its immediate challenges while capitalising on its strengths.
As the data reveals, India’s economy stands at a crossroads, balancing the push of progress with the pull of persistent hurdles.
What Lies Ahead?
India’s path forward demands an unwavering focus on efficiency and execution. The metaphorical “thin roti” encapsulates a vision where timeliness, precision, and resource optimisation become the pillars of national progress. By addressing inefficiencies and fostering innovation, India can not only weather current challenges but also position itself as a global economic leader.
The story of India’s transformation hinges on balancing its vast potential with the discipline to execute efficiently. A journey that will define the next decade.