1.Good growth but … Survey realistic on GDP, big macro picture. But private consumption, formal sector jobs are worries

The key message of the Economic Survey is that in 2022-23, the economy is expected to grow between 8-8.5%, mainly on account of vaccination-triggered normalcy, robust exports and the availability of fiscal space for GoI investment. These are reasonable assumptions and lend credibility to  projections. But the forecast also assumes there won’t be any more shocks. First, the Survey expects monsoon to be normal. Second, it assumes key central banks in rich countries will ensure that financial markets don’t panic during liquidity tightening. Third, it says the average price of oil will drift down from the current $89/barrel to about an average of $70-75.

Even assuming all these hold, there are implicit assumptions in the Survey. These are less convincing. GoI assumes that the pandemic’s economic cost is entirely temporary. That vulnerable economic segments will bounce back. This is inconsistent with data on both employment and overall consumption. Private consumption in 2021-22 is not expected to reach the level that existed two years ago even though the overall GDP will be higher. The underlying cause shows up in the employment data, be that of GoI or CMIE. GoI’s quarterly surveys on urban employment show that jobs have shifted to the informal sector. In the January-March 2021 survey, there’s a 2.4 percentage points dip over a year in formal sector jobs to 48.1%. Those jobs have shifted to the informal sector. CMIE’s data covers the period till September-December 2021. It shows that over two years, there’s more than a 2 percentage points fall in the labour force to 40.3% of the population. With people dropping out of the labour market, and informal sector jobs offering low and uncertain incomes, consumption hasn’t kept pace with overall GDP. This also has implications for revival of private investment. Even if banks have lendable funds, industry will wait for robust demand.

The recovery in overall GDP, however, has provided GoI with fiscal space arising from buoyant revenue. Therefore, in addition to capital expenditure, it needs to use the fiscal space to help contact-intensive services sectors to get back on their feet. This will also improve the job market and feed into private consumption. Recovery has been good. But worries remain, domestic and possibly external.

2.Elections & budgets: Economic conditions are more important for voters than many politicians think

The Union Budget this year will be presented while EC’s Model Code of Conduct is in force across five states, including India’s most populous one, UP. In 2017, EC had forbidden GoI from announcing state-specific schemes or broaching achievements relating to the five poll-bound states in the Budget speech. The 2012 Budget, now infamous for Pranab Mukherjee’s retrospective taxation fiasco, was postponed to March 16 for state polls to conclude. This year, EC hasn’t issued specific directions like 2017 though MCC’s usual strictures against announcing “any financial grants or promises” that have the effect of influencing voters should still apply.

But elections have other effects on budgets. For example, UP’s and Punjab’s discoms are among the most debt-ridden. They urgently require reforms worked out for the electricity sector to come into effect. But these reforms are usually unpopular, because they attack subsidies, especially those given to farmers. So, it is almost certain today’s Budget will steer clear of signalling anything on electricity reform. Sometimes ‘election budgets’ do the other thing – when MCC is not in force, they give generous doles. The best recent example is Congress’s 2008 Budget – general elections were in 2009 – that announced the farm loan waiver. That sop was thought to have helped Congress come back to power. But when Congress increased allocation for food security in the 2013 Budget – general elections were in 2014 – and followed it up with a food security law, voters remained unimpressed and the party was thrashed.

The lesson here is that sops alone can’t win elections, and sometimes you can win elections even without competing on giving the best sop. In the election year 2019, Congress came up with the basic income transfer scheme, Nyay. But BJP’s Budget proposed a limited income transfer scheme to farmers. BJP won a thumping majority – thanks to other factors.

However, BJP also won in 2019 despite elections being held in the middle of slowing GDP growth. This should not be seen by parties, including BJP, as indicating that the economy is irrelevant. It’s very, very relevant most times because it is one of the factors that determine how voters feel about themselves. UP polls, being held amidst job losses and rising inflation, will be a test of the economy-election hypothesis.

3.Turbulence ahead: On Tata Group acquisition of Air India

Air India will need all the managerial expertise it can get to turn into a successful buy

The Tata Group’s consummation of its acquisition of Air India last week marks both the culmination of the airline’s return to its original founders after an almost seven-decade hiatus, as well as the start of an arduous long-haul flight for the loss-making, formerly state-owned flag carrier. The Tatas’ enthusiasm for winning back what was once the country’s iconic airline brand notwithstanding, the skies in which the industry operates have changed considerably. A look at the market share data from the domestic air passenger segment clearly shows that budget or low-cost flights now hold a dominant position, commanding about four-fifths of the market. The Tata group’s full-service venture, Vistara, with no less a partner than Singapore Airlines on board, has struggled to establish a foothold and with Air India’s addition, the Tatas find themselves saddled with a bulk of their combined domestic market share of 23% (as of November) being in the less-in-demand full-service segment. Nor is the group’s newly combined share from the low-cost segment, comprising Air Asia India’s 5.9% and the fractional share that Air India’s Air India Express has, significant enough at the moment to give it scale in the high-volume business. That the group is said to be considering consolidating Air India’s domestic low-cost services along with Air Asia India’s operations is a clear indication that the Tata bosses realise the need to optimise the varied aviation resources that are now in the group’s fold so as to enhance viability.

On the international front too, Air India faces multiple challenges, not the least of which is the Government’s current pandemic-related curbs on commercial international flights. With foreign carriers restricted to limited capacity under the ‘Air Transport Bubbles’ arrangement, Air India too has found itself constrained in the number of overseas flights it can operate under the bilateral arrangements with counterpart countries. The Tatas, though, could use the current curtailment of overseas services as an opportunity to undertake a long overdue overhaul of Air India’s inflight experience. Also, with Vistara now operating to a few select overseas destinations, the Tatas will need to decide if they would want a younger in-house competitor to Air India once COVID-19 restrictions are lifted and normalcy restored as regards international flights. For the Tata group, the choices going forward will need to be strategic. With the domestic market set to see more churn with at least one new budget airline set to enter and other rivals struggling for capital, the group needs to decide whether it wants to add capacity to budget offerings or stay a predominantly full-service carrier at a time when the more lucrative business class travel has been hit. And with aviation fuel costs set to soar further, Air India will need to tap into all of the Tata group’s vaunted managerial expertise if it is to turn into a successful buy.

4.Another one: On Nadal’s Australian Open win

Nadal keeps overcoming the challenges posed by age and injury

In legendary sporting careers, there comes a moment which perfectly encapsulates the champion’s relentless pursuit of transcendent brilliance. For Sachin Tendulkar it was reaching a hundred international hundreds and for Kapil Dev it was getting to 432 Test match wickets to become the then highest wicket-taker. It spells consistency, across decades and geographies. On a balmy Sunday evening in Melbourne, it was the turn of Rafael Nadal to attain similar nirvana with a record 21st men’s singles Grand Slam title, passing Roger Federer and Novak Djokovic in the all-time tally. The 35-year-old is only the fourth man in history (after Roy Emerson, Rod Laver and Djokovic) to win all four Majors at least twice. Nadal was not best placed to achieve what he did. For much of the second half of 2021 he was in exile and a chronic foot injury had him considering retirement. In Australia, he was physically sub-prime and in the final against Daniil Medvedev — a 6’6” albatross, who barely five months ago felled Djokovic at the 2021 US Open with a blindingly devastating performance — he was on the cusp of defeat, down two sets and three break-points. But what came to the fore was Nadal’s greatest trait, the uncanny ability to thrive when barely allowed to live, culminating in what he called his “greatest comeback” and the “most unexpected achievement” of his already glittering career.

The previous decade in Australia has been one of disappointment for the Spaniard, having lost four finals, including two from winning positions. A repeat seemed in the offing when deep in the fifth set he failed to serve out the match. But such was the rarefied heights he reached that he quickly left a bad service game behind, relaxed into the moment and earned another opportunity for a shot at history that he would not miss. There was a history-maker among women too as the classy Ashleigh Barty, a player with indigenous Australian heritage, won her maiden Major on home soil, a first for an Australian since 1978, and third overall after the 2019 French Open and 2021 Wimbledon. Adept on grass and clay, courtesy her first-rate footwork and outstanding racquet skills, Barty seamlessly transitioned to the acrylic, adding some aggression while keeping her finesse and variety intact. Even in the crowded marketplace that global tennis is, there are no styles and personas quite like Nadal’s and Barty’s. It was apt that the event ended with rousing victories for the duo, despite the fog of Djokovic’s deportation saga that had settled pre-tournament. For Indians, Sania Mirza’s announcement of retirement at the end of the season will bring a tinge of sadness. But the year ahead will be another opportunity to relive and celebrate her stunning achievements and trailblazing legacy.