The economic costs of the slowdown have not been shared equally in the larger economy. While non-financial firms have been witnessing a contraction in salaries and revenues, financial firms are actually performing well. The former have a much bigger share in output and employment than the latter.
The Indian economy has been losing growth momentum for six consecutive quarters up to September, 2019. GDP growth fell to 4.5% in the quarter ending September, the lowest since March 2013. With the Central Statistical Office (CSO) predicting GDP growth for 2019-20 to be 5%, any sharp recovery in the second half of the fiscal year seems unlikely. To be sure, the economy could end up doing worse, as is suggested by institutional – IMF has projected India’s growth to be 4.8% this fiscal — and private forecasts.
But not everyone has been affected in a similar way. An HT analysis using Centre for Monitoring Indian Economy’s (CMIE) Prowess database shows that it is companies in the non-financial sector which have been hit the most by the current slowdown. Financial sector companies seem to actually be doing better than they have in the past few years.
This analysis is based on 2159 companies for which quarterly results are available for the past 10 years up to September 2019; 1874 out of these are non-financial companies, which can be classified into five sub-sectors, namely manufacturing, mining, electricity, non-financial services, and construction & real estate.
To be sure, Prowess has data for 50869 companies (in which non financial sector companies comprise 78%), but not all of them have quarterly results for the past 10 years.
Of the 2159 companies considered in this analysis, non-financial companies accounted for 80% of total revenues in 2018-19. Of the 2159 companies for which data is available up to the September quarter, employment data is available for 1939 companies for 2018-19.
Among this, financial sector companies had a share of 21.5% in employment, while non-financial sector companies had 78.5%. This means that the non-financial sector is what matters from the perspective of mass income and employment.
Growth in inflation adjusted salary expenses for non-financial sector companies in the September 2019 quarter was -0.7%. This suggests either job losses or wage cuts.
This is the sharpest fall in salaries since March 2014. At the same time these expenses for financial sector firms grew by around 12% on a yearly basis, the third highest increase in the past eight years. (See Chart 1)
The analysis of inflation adjusted revenue data of these firms further shows that while the revenue of companies engaged in financial services showed a yearly increase of 8.6% in the September quarter (growing at the highest rate in the last seven years), the same for non finance sector companies showed a yearly fall by over 12%, the sharpest fall since the December 2015 quarter. (See Chart 2)
For auto companies, which have seen a dip in sales for the last 18 months , both revenue and salary expenses fell at the fastest rate in the past decade in the September 2019 quarter at 25.8% and 6.2% respectively. In comparison, the banking services sector saw the best yearly growth in revenue since June 2012 and the third highest growth in salary expenses at 8% and 12% respectively. For the December 2019 Quarter, results were available for 120 companies till 21 Jan.