What seemed like a one-off issue is starting to look like a trend. Collections from the goods and services tax (GST) fell to 6.5%, its lowest level in 40 months. At 6.5%, it barely tracked inflation which means there was no volume growth. The trade deficit widened to US$29.7bn (billion) in August from US$24.2bn a year ago. India's merchandise exports, its weakest spot and a tell-tale sign of the country's poor competitiveness, declined to US$34.7bn in August from US$38.3bn a year ago. The annual gross domestic product (GDP) growth rate is down from 7.8% to 6.7%. The index of industrial production (IIP), which tracks the output of eight core industries, such as coal, oil and electricity, was negative in August for the first time in three years. In September, car sales fell by 19% over the same period last year.
Given how macro data is collected and collated by the government, some numbers may turn out to be less bad than they appear. For example, I would not rely much on the IIP data. However, both export and GST data are highly reliable. So is data sourced from corporates, such as the purchasing managers' index (PMI). The PMI hit an 8-month low at 56.5 in September from 57.5 in August. Services PMI fell to 57.7 points in September to hit a 10-month low; it was 60.9 points in August 2024.
Home loan disbursals were down 9% in the first quarter, auto loans were up only 2% and personal loans up just 3%. Credit disbursal by fin-techs is stagnant. In the April-August period, diesel sales rose just 1% year-on-year (y-o-y). A slowdown seems to have set in.
The quarterly results season is on and early results from the largest Indian companies have been disastrous. Last week, Bajaj Auto's stock price declined over 15%, its largest weekly fall since January 2011, following the release of the second quarter (Q2) of FY24-25 results; operating profit was down 2.68% y-o-y, and operating profit margin (OPM) slumped from 20% to 16%. Worse, the management projected festive season sales growth of just 1%–2%, far below the industry expectation of 5%–6%.
The Indian consumption story has been weak for a while. Poor economic policies have depressed the income of middle-class and poor Indians and real wage growth has turned negative. Even Nestlé India's products, usually less susceptible to a slowdown, have been hit. Domestic volume growth was only 1%, similar to saturated and stagnating developed countries. Net profit was up only 7% and revenue from operations increased just 3.3%.
Tata Consumer, another large consumer goods company, reported weak results that pushed the stock down by 7% on Monday. Two other behemoths of Nifty 50, Kotak Mahindra Bank and HDFC Bank, reported just a 5% increase in profits.
Services exports are seen as a bright spot for India. Contrary to the never-ending bullish commentary about global capability centres (GCC) which dot Bengaluru, Hyderabad, Chennai, and Gurugram, the growth numbers are underwhelming.
Remember, services exports grew at only 8.92%pa (per annum) between FY14-15 and FY23-24. Not surprisingly, Infosys' September quarter results were poor as revenues struggled to even beat inflation. Profit was up only 4.73% and revenues increased by just 5.11% y-o-y.
It was no different at Tata Consultancy Services (TCS), India's largest IT services company. Revenues rose 7.06%, while net profit was up only 5%. Another Nifty 50 software company, LTI Mindtree, reported a revenue increase of 5.92% and a profit growth of 7.68%.
A recent research report by Nuvama says that the Indian economy faces a major demand deceleration; several indicators are hovering around pre-COVID levels. One reason, according to Nuvama, is that government capex seems to have peaked out after four strong years, while the private sector has not picked the baton as yet.
It says, "India's corporate profit growth may also have peaked out as top line is weak and best of the margins are behind as terms of trade have faded."
As mentioned earlier, the first crop of results by large corporates seems to support this view.
There are some positive data points as well. Net direct tax collections continue to be robust, thanks to India's booming stock market yielding capital gains tax. India's forex reserves have hit US$705bn. 5G smartphone sales are growing by 23%, making India the second-largest 5G market globally after China. Electronics manufacturing has recorded strong growth, supposedly reflecting the success of 'Make in India'.
After a brief hiatus due to general elections, the government has stepped up its capital expenditure in defence, renewable energy and infrastructure. These pockets of positive data help in chest-thumping but pale into insignificance when set against the big picture of a slowdown – poor private investment, weakness in manufacturing and exports and poor wage growth.
Last fortnight, I pointed out that the permanent changes being touted by stock market experts, such as a strong banking system, current account, low inflation, controlled budget deficit and low debt-to-GDP ratio, don't hold up on closer scrutiny.
Now data shows that the Indian economy remains a cyclical play after all; there has been no fundamental transition to higher income through higher productivity and improved competitiveness. After all, prosperity is not India's birthright.
We need to do the hard work of raising rural incomes through agricultural reforms, make mass manufacturing cheaper and exports competitive. These are nowhere on the agenda.
We don't even know where to begin, given how fractious and polarised our politics and society have become. But the popular narrative is that this is ‘India's century’ or ‘India's era’. If growth reverts to the pre-COVID level, a lot of people may have to temper their rosy optimism.
(This article first appeared in Business Standard newspaper)
Comments
amit_kumar
3 months ago
How can we expect private investments in the midst of Bulldozer Raj?
Basu is good at painting negative picture all the time. If stock price is an indicator of a good economy, he should have praised the government when stock market was booming till end September 2024. He seems to be a true commi. Never appreciate when it is good but highlight 10x when something goes little bit slow and he will not mention the negative external factors like wars in this analysis.
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