State of Economy-I: Vital Economic Indicators Suggest a Longer Slowdown
The political discourse this election season has grabbed the attention of the voters, but it offers little to soothe them as the Indian economy is far from being in good shape.
 
The economy, which braved a global slowdown and recovered from the pangs of 2016 demonetisation to stage a recovery in early 2018, is in the midst of yet another threat of a slowing GDP growth rate with an ever growing population.
 
The vital macro-economic data suggests the new government after polls will inherit an economy slipping downhill.
 
The latest shocker for the economy has come by way of third quarter GDP growth (FY18-19) numbers. In the October-November period, growth slipped to 6.6% of GDP, slowest in the last six quarters. What is worrying is the downward revision of the growth forecast for the fourth quarter.
 
The government's Central Statistics Office (CSO) has already trimmed its 2018-19 growth forecast to 7% from 7.2% estimated in the previous month.
 
An indication that current slowdown in growth rate is here to stay, international agencies such as Asian Development Bank (ADB) and International Monetary Fund (IMF) along with country's apex bank, the Reserve Bank of India, have also cut the GDP growth forecast.
 
A Kotak Institutional Equities report has even pointed towards growing unease in the corporate sector over the prospect of the economy to provide them returns over sudden deterioration in the short-term demand narrative.
 
"We see a major shift in tone (for the worse) on short-term demand narrative in the management commentaries of the companies that have reported thus far. When a generally-measured management like (Hindustan Unilever) HUVR's uses the term 'recession' in its comments in the post-results presser, it generally isn't a one-quarter blip," the report has said.
 
This also indicates that growth is not the only factor. Along with slowing GDP, private consumption appears to have declined in the first three months of 2019 and it is the government spending that is preventing a faster slide.
 
"There is a lot of probability that the rural distress has caused a slowdown in consumption. Consumption propensity is very high in the rural income and rural areas. I think rural distress and disruption of the informal sector have affected consumption and brought down GDP growth," said Montek Singh Ahluwalia, former deputy chairman Planning Commission.
 
Echoing similar sentiments, CRISIL's chief economist DK Joshi said that current slowdown is more broadbased as it is affecting both urban and rural areas. "Though it is affecting everyone, the slowdown is more prominent in rural areas. The growth has also slowed down primarily due to rural distress. Rural income is not growing and this is reflecting in the slowdown in consumption," he said.
 
However, he also said the slowdown that we are seeing is 'cyclical'.
 
Agriculture sector will throw up fresh challenges for the new government as not only the promised doubling of farmers income is nowhere near, faulty procurement policy and bumper production have depressed prices pushing farmers into abject poverty.
 
"While it is well known that the resilience of crop yields, one of the success stories of Indian agriculture, along with a poorly executed procurement policy have led to depressed crop prices, it is not so widely known that the "informal" sector in many parts of rural India is yet to recover from the multiple disruptions over the past several months," said a report by JM Financial.
 
"A reflection of a decline in private consumption is also reflected in the steep decline in the growth of two-wheeler sales, towards the end of the year. The expected firming up of government consumption expenditure in Q4 of 2018-19 is on course as growth in cumulative revenue expenditure of the Central government has been higher in recent months," as per the finance ministry report.
 
Two-wheeler sales, for instance, contracted by around 20% in February.
 
Combine the slowing growth with rising fiscal deficit that already ended up higher than budget estimates and increasing current account deficit on rising oil prices, the economic situation is expected to remain stressful even in FY20.
 
The government has already acknowledged the stress. The finance ministry in its latest Monthly Economic Report for March 2019, has said that Indian economy seems to have slowed down slightly in 2018-19 due to muted exports, declining growth of private consumption and tepid increase in fixed investment.
 
Though the exports logged a 9% growth in FY18-19, it is not in proportion to the growth of the Indian economy. Exports still stands lower at 11% of GDP in FY18-19, down 5 percentage points from 16% in FY13-14.
 
The odds are also stacked against exports growth in the coming months, as projections of global economic growth has been cut by multilateral agencies such as the International Monetary Fund (IMF). This would mean that that even if Indian exporters are pushing up overseas sales through various initiatives, they would find it difficult to woo buyers as they would not be interested over their shrinking purse size.
 
The easy run of current account deficit (CAD) could also be under pressure in FY19-20, if Iran situation escalated and current oversupplied oil market ends in a deficit. India reduced its import bill substantially in past few years due to lower oil prices.
 
If this advantage is lost, that looks a possibility with crude already rising over 30% this year (since January), it becomes a problem for country's balance of payment. It is estimated that with every $10 per barrel rise in oil prices, the CAD gets impacted by 0.4% of GDP.
 
While its true that although the extent of the current account deficit (expected at around 2.6% in FY18-19) is not as large as the one that was seen in 2012-13, a widening gap tends to push up the inflation rate and impose checks on the economy's growth potential.
 
To bridge CAD, capital inflows from abroad or foreign direct investment (FDI) plays a key balancing act. Though FDI inflows have been under stress for few years, investments have not come capital intensive and manufacturing sectors that have a multiplier affect in the economy and have big contribution in job creation.
 
The ongoing trade war, between the US and China, is affecting global trade in general and undermining India's exports recovery prospects. And if the global economy remains troubled, India may not receive steady inflows of FDI.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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COMMENTS

Ramesh Poapt

2 months ago

govt is not to be blamed fully. global factors too plays its role.
situation not easy but best possible will be followed.

REPLY

shadi katyal

In Reply to Ramesh Poapt 2 months ago

I beg to differ as unless our own economy is strong ,the world trade or conditions will have aqn effect. It is unfortunte tht we try to blame others but not look deep into our own mismanagement and incompetancy.
Kindly tell us what Modi has done for the nation in this respect

shadi katyal

2 months ago

This should not come as a surprise as there had been no GDP growth in past few years. The figures provided are fake as the basket of goods and services has been made as required.
The nation has been without much Law and Order and how can we expect any investments or industry. Most of investments are going to Vietnam and other nations while we are left high and dry.
One doubt if Modi is even concerned with the nation welfare except his Hate speeches to win elections.
We also lack any trained and disciplined labour and no amendments in Labour and Union Laws.
How long nation will suffer with Religious elephant in the room keeping it dark

India's April wholesale inflation eases to 3.07%
India's annual rate of inflation based on wholesale prices eased to 3.07 per cent in April from 3.18 per cent in March, official data showed here on Tuesday.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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India's crude import will increase: Moody's
India's crude import bill will grow fatter despite numerous measures by successive governments to reduce its dependence on crude.
 
A Moody's report on Monday said that "India's oil and gas consumption will support its investments in refining capacity and upstream production, but crude imports will keep growing amid stagnant production".
 
India imports nearly 80 per cent of its oil requirement which makes is highly dependent to imported oil and hence susceptible to wild fluctuations in the international oil market.
 
The governments push towards electric vehicles to reduce dependence on imported oil was also not seen to bearing fruit in the near term.
 
Moody's said: "Even though the government is encouraging faster adoption and manufacturing of electric vehicles, the response has not been great because of a lack of high-quality, affordable vehicles and the evolving charging infrastructure".
 
Besides, the government pressure for shareholder returns will "temper National Oil Company's (NOC) credit quality", Moody's flagged.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  

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