StanChart says return to pre-Covid purchasing power of consumers to be gradual, uneven

“Our analysis of available employment and job surveys indicates that the purchasing power of Indian consumers has improved since last year; however, it remains below the pre-pandemic phase,” Standard Chartered Bank economists Anubhuti Sahay and Kanika Pasricha wrote in the report.

“Job losses have been large since the outbreak of the pandemic. While we have observed a partial reversal of job losses (especially in rural areas), reaching pre-Covid levels of worker population (especially in secure/better paying jobs) is likely to take time,” they wrote.

According to the report, the experience of certain countries where labour force participation rates are yet to reach levels seen before the pandemic despite relatively better vaccination coverage and a faster pace of recovery could apply to India too.

This is especially as the Indian government’s fiscal response to the pandemic has been measured relative to other developed countries – a correct approach in Standard Chartered Bank’s view.

In the Union Budget for FY22, the central government announced a fiscal deficit target of 6.8 per cent of GDP for the current financial year, an upward revision from the 3.3 per cent target set earlier.

However, despite the increase in the deficit, the government chose not to announce a blanket spending push, instead focusing on targeted sectors which required the most assistance amid the Covid crisis such as micro, medium and small enterprises.

The economists said while nominal wages and salaries, both rural and urban, are exhibiting signs of normalisation, elevated inflation shows that real purchasing power could stay lower than the levels witnessed before the pandemic.

Inflation as measured by the Consumer Price Index shot up to a six-month high of 6.30 per cent in May before moderating to 6.26 per cent in June.

“Our analysis shows that in the last decade, higher real rural and urban wages took turns to support household consumption expenditure ; a re-emergence of this support might take time, in our view,” Sahay and Pasricha wrote.