Toyota expects steady demand for diesel models `5 biscuits are too pricey for workers!

Toyota Kirloskar Motor (TKM) plans to continue selling diesel models as prices of such vehicles are expected to go up significantly from April 1. "We still see demand for diesel variants, and will continue to manufacture them till we have the future technology setting in," TKM Vice-Chairman Shekar Viswanathan said. He said the current diesel-petrol sales ratio is 82:18. When snack makers start to lament that Indians can't afford to spend Rs 5 (7 cents) on biscuits, it's time to stop arguing over how much of the nation's slowdown is cyclical and what part is structural.

Considering its glaring income, wealth and consumption inequalities, India is a surprisingly calm society. However, when purchasing power dries up to the extent that rural labourers and urban blue-collar workers have to think twice about cheap munchies, the situation is desperate. The culprit is deep-rooted wage suppression.

Britannia Industries, the No. 1 biscuit maker, recently sounded alarm bells over the sharp deceleration in its sales volumes. Rival Parle Products chimed in and said jobs were at risk for as many as 10,000 of its workers.

A Parle executive blamed the 2017 goods and services tax, or GST. While the consumption tax may indeed have been an additional burden in an economy slowing under a disastrous November 2016 currency ban, the funk has its roots in insufficient wages. In recent years, only about a third of the economy's income has gone to labour, with providers of debt and equity capital taking the rest, according to India Ratings and Research, a unit of Fitch Ratings. Raising that 33.2 per cent labour share to the developing-country average of 37.4 per cent would put an extra $100 billion of annual spending power in the hands of households.

Only then they can start facing up to the tougher challenge of reaching advanced-economy levels. It has a long way to go. The labour share of income in the US was almost 57 per cent in 2016, even after a near 10-percentagepoint drop following World War II that was caused by technological changes and globalisation, according to McKinsey & Co.

Trouble is, the distribution of the economic pie is more lopsided than the aggregate numbers suggest. As India Ratings' analysis shows, 80 per cent of the output generated in informal production gets used up in paying for capital, which is scarce; households get only 20 per cent in exchange for toiling on farms and in cottage industries. At the same time, only 32 per cent of the production of a bloated public sector is shared with the taxpayers and banks that provide the capital; as much as 68 per cent goes to a privileged group of state and quasistate workers, who enjoy assured jobs and relatively higher pay.

The privatisation of inefficient behemoths like Air India would reduce the wastage of capital. But it won't automatically help informal private businesses grow and become productive.

Industries from autos to biscuits are demanding lower GST rates. There's no fiscal room to please all. The government hit the brakes on its own investments in the June quarter, amid an extended slump in private capital expenditure.

Easier hiring-and-firing norms-and not mere consolidation of archaic labour laws-will boost employment in more productive large firms that can pay better. If Amazon.com can build its largest global centre in India, why should factories be afraid to scale up by hiring blue-collar workers? At the other end of the spectrum, small firms need finance.

A year-long liquidity crunch in the shadow banking industry has caused jitters in the market for loans-againstproperty, which is how midsize businesses finance themselves. But even the luxury of a $25,000 loan obtained by mortgaging property worth $350,000 isn't for everyone, as Pratibha Chhabra, a financial inclusion specialist at the World Bank, notes. Most small firms only have inventory and invoices to pledge, and no lender wants to be left holding half-made chairs, or potatoes rotting in a warehouse.

However, if a bank lending to a furniture maker or a potato farmer in India can get repaid directly by Ikea or PepisCo against certified invoices, it can share the benefit of the final customer's creditworthiness with the borrowers. This is how Citigroup greases the global supply chain of 700 multinationals and their 70,000 vendors. Since most tiny businesses run on household labour, only statisticians will worry about whether wages or profits are getting the lift. Spending power in the economy will rise. Such financing is well established in developed markets.

India is overdependent on microfinance, which uses group pressure and social shame to collect on exorbitantly priced but collateral-free-small loans. The country is barking up the wrong tree. A woman doing embroidery on a sari will never get more than a fraction of what her craft will ultimately sell for. But she can be given access to cheap credit. Then, she'll also be able to buy more biscuits for her children. —Bloomberg