A government’s policies will necessarily have some winners and some losers and sometimes, the character of a government can be discerned from a consideration of who has gained and who has lost. So, a year after the Narendra Modi-led National Democratic Alliance (NDA) government was elected, who are the winners and who are the losers? We list below some of them, with the caveat that there are many forces besides government policy that affect the economy.
WINNERS
Equity investors: Investors in shares have seen returns far exceed other asset classes since hopes of the new government started driving stocks in February 2014. Despite the recent correction, the Nifty has risen by over 37% from February 2014 levels. Since the time the new government was elected, the markets have risen by about 16%.
Equity traders: They saw a near doubling of trading activity, thanks to the excitement about the new government. On the National Stock Exchange’s equity cash and derivatives segments, average daily turnover has nearly doubled to `3.2 trillion in the past one year.
Investment bankers: They made the most of the improvement in sentiment for Indian equities and presided over equity fundraising worth nearly $10 billion, or `58,801 crore, to be precise, in financial year 2014-15. This is almost exactly double the funds raised through equity issuances in the preceding year. Analysts at DSP Merrill Lynch Ltd expect equity fundraising to remain strong, with over-leveraged companies expected to raise funds to repair their balance sheets.
Big business winners, small business losers: The economic slowdown has hit small businesses the hardest. Things on the ground haven’t changed much after the NDA came to power. As the chart shows, the small guys still have the worst net profit margins. We have taken the net profit to sales ratio since many businesses have been making continuous losses, so no growth percentages are available.
Home buyers: Rising incomes have made houses more affordable. Data collated by Housing Development Finance Corp. Ltd over 20 years shows that the affordability ratio at 4.4 is the lowest in more than a decade. Lower ratio means higher affordability.
Another factor could be that tax incentives for housing given by the government, mainly in the mid-sized segment, have lowered effective interest rates, making housing mortgages more affordable.
Car buyers: Over the last 12 months, about an 8% drop in fuel price has enthused consumers to buy passenger cars. Maruti Suzuki India Ltd reported a significant rise during fiscal year 2014-15, mainly in the March quarter, in the number of first-time buyers. Interest rates on car loans, too, have cooled a bit, helping them.
LOSERS
Foreign institutional investors (FIIs): 68 of them, who were sent notices by the income-tax department for payment of dues worth `602.82 crore, thanks to the applicability of MAT (minimum alternate tax). In February, while presenting the budget, the government had said that MAT will not apply to FIIs, and that Gaar (general anti-avoidance rules) is being deferred, causing FIIs to breathe a huge sigh of relief. The notices that were sent later pertain to previous financial years and have achieved the opposite of the government’s stated objective of ending so-called tax terrorism.
Farmers with surplus: The government has been stingy with hiking the minimum support prices for many crops. That would lead to slower growth in income for farmers with marketable surpluses and is a potential reason for depressed rural demand.
Rural workers and rural demand: Real rural wage growth started decelerating well in 2012, but the NDA government hasn’t been able to reverse the trend. Indeed, as the chart shows, real rural wages growth actually shrank for a few months before stabilizing. With the Met department predicting lower-than-normal monsoon rain, it is questionable whether wages will remain stable. Many companies in the discretionary consumption segment are seeing a slowdown in rural demand. Mahindra and Mahindra Ltd reported a 14% drop in tractor sales in FY15 and expects single digit growth in FY16. Motorcycle sales, too, have been affected, growing by only 2.5% in FY15 while moped sales grew by 4.5%.
Urban FMCG buyer: Urban consumers make up two-thirds of the so-called fast-moving consumer goods (FMCG) market size. Urban consumers have benefited from lower inflation, but sluggish economic growth (especially in industry and services) seems to have hurt consumption growth. In 2014-15, urban market sales growth was about 4%, according to company data.
Employees: Employee costs increased by 9% year-on-year for 462 companies out of the BSE-500 index of the Bombay Stock Exchange for the nine-month period ended December 2014. This is the slowest growth in the last five years at least. Clearly, wage growth has not been impressive, probably because the economy is still in a recovery phase. Companies could have resorted to cost-cutting as a way to maintain their profit margins.
Infrastructure contractors: Over the last 12 months, infrastructure contractors were unable to see measurable gains in business. The pain from old projects that are stuck—either due to clearance hurdles, weak execution or financial constraints—continues. Moreover, new tenders from the government declined by nearly 23% in value terms for fiscal year 2014-15. Few tenders were visible in roadways, water supply, irrigation and railways. But this may be about to change, if one goes by the budgeted outlay for highways and road transport, which was 35% higher than that in the previous budget
