I have been coming across a whole bunch of stories in leading newspapers about double digit salary hikes, increases in attrition rates and increases in hiring. Those doesn’t seem like signs of a slowdown in an economy to me.
In fact, my analysis suggests that the Indian economy went through a moderation phase in the second half of 2011, is now on a recovery path and is very likely be able to maintain growth rates of 8% plus, governance and reform issues notwithstanding.
ET / 3rd May : India Inc. expects double-digit salary hikes this year: Survey : “TeamLease said double-digit salary hikes are likely this year and the average salary growth in India could hit near 20 per cent levels in 2012.”
ET / 22nd May : Boom time for MBAs continues : “…..Not only are the salaries higher but 88% of Indian employers plan to hire MBAs in 2012, in line with the 89% of Indian employers that reported hiring MBAs in 2011.”
ET / 4th Jan. : Employees to get 14% average pay hike in 2012: Experts: “Employees can look forward to an average salary hike of 14 per cent in 2012, up from 11 per cent last year, while hiring activities would be robust in various services sectors, such as banking, experts believe.”
BS /1st May: India Inc may see attrition rates as high as 31% : “India Inc. is likely to see attrition rates as high as 31% during the three months ending June, as employees unsatisfied with annual salary hikes would look out for better prospects, say experts.”
Economy in a Recovery Mode and Expanding
Double digit salary hikes, increases in hiring and high attrition rates are indicators of an expanding economy, not signs of a moderating economy.
Of course, the estimates and opinions differ a bit in terms of actual percentages, but that’s the nature of surveys, estimates and expert opinions in any case. The important point is that directionally all estimates point to a fairly robust growth in salaries and hiring in 2012.
That seems to tie in with my own analysis of economic data which suggests that the Growth story is intact, and slowdown fears are unfounded.
In fact my analysis of economic data of major economies around the world suggests that even the Global recovery is robust.
See the graphs below for IIP and PMI. Which is a better interpretation – that the economy is contracting OR that it is on a slow and steady recovery path?
There is no denying that there was a moderation of growth in the second half of 2011, with Dec. 2011 GDP growth being at 6.1%, from a high of 9.3% in the June 2010 quarter, with corporate profitability and other indicators too showing a moderation.
But this growth moderation has to be viewed from the right perspective:-
- Economies rarely, if ever, grow in a straight line. After a period of frantic growth, there is almost always a period of moderation. After all, economies need time to catch their breath too. And for a moderation period, a 6.1% rate of growth isn’t really too bad.
- Macro indicators for the first four months of 2012 are now pointing towards a resumption of growth trajectory and a slow and steady recovery.
What about Governance Issues and Reforms Going on the Back Burner?
There is no denying that we have major governance issues, and there seems to be a general consensus that no major reforms are going to go through till the 2014 general elections.
However, I don’t see that getting in the way of the Indian economy touching 9% growth rates. The reason is simple – the Indian economy has already built up a base momentum and growth rates of 8% plus are the ‘new normal’ so to speak. In fact I recollect an insightful study done by RBI which talks about the new long term average growth rate being in this 8% range.
The bottom line is that the economy went through a moderation phase in the second half of 2011, is now on a recovery path and is very likely be able to maintain growth rates of 8% plus, governance and reform issues notwithstanding.