The US-based Fitch Ratings today appeared to pick holes in the governments 7 per cent growth estimate for the December quarter despite the cash crackdown, saying official data suggesting strong private consumption are at odds with real services activity.
The rating agency, however, projected a robust 7.1 per cent growth for 2016-17 and 7.7 per cent in the following two financial years (2017-18 and 2018-19).
Fitch said estimates released by the Central Statistics Office (CSO) last week showed GDP was “hardly hit” in October-December by the cash crunch after the governments sudden move to pull out 86 per cent of currency in circulation overnight.
The 7 per cent GDP growth in the third quarter is marginally lower than 7.4 per cent expansion in the previous quarter.
“This number looks somewhat surprising as real activity data released since demonetisation pointed to weak consumption and services activity because these transactions are cash-intensive. By contrast, official data suggest that private consumption was strong in October-December (though services output growth moderated quite substantially),” it said.
In its latest Global Economic Outlook (GEO), Fitch said one reason for this discrepancy could be the inability of the official data to capture the negative effect of demonetisation on the informal sector.
“However, the formal sector also remained surprisingly robust. This raises the possibility that these initial estimates of the growth impact of demonetisation could well be underestimated, with the possibility of revisions to official GDP data later on,” it said.
Fitchs projection of 7.1 per cent economic growth for this fiscal is in line with the estimates of CSO and global think-tank OECD.
This growth rate compares to 7.8 per cent expansion in 2015-16.
It estimated retail price inflation to rise to 4.6 per cent in 2017-18 and 5 per cent in 2018-19, from 3.4 per cent in the current year.
For the world, it said growth slowed to 2.5 per cent in calendar 2016, from 2.7 per cent, which is projected to pick up to 2.9 per cent in 2017 and 3 per cent in the following year.
China, however, is seen to decelerate to 6.3 per cent in 2017 and 5.7 per cent in 2018, from 6.7 per cent in 2016.
Global oil prices may rise to USD 52.5 in 2017 and USD 55 in 2018, from an average of USD 45.1 per barrel in 2016.
Forecasting robust growth rates for India in the next two fiscal, Fitch said: “Gradual implementation of the structural reform agenda is expected to contribute to higher growth, as will higher real disposable income, supported by an almost 24 per cent hike in civil servants wages at the state level.”
It said macroeconomic policy support to growth may gradually fade.
“There may still be some positive impact from the previous accommodative monetary policy stance, but the Reserve Bank of India signalled in its February meeting that its interest rate easing cycle had come to an end,” it added.
“We are now expecting the policy interest rate to stay at its current level of 6.25 per cent. At the same time, the government announced in the last Budget the raising of the deficit target for 2017-18 to 3.2 per cent of GDP, from 3 per cent, which would support growth.”
Demonetisation of old high value currency and the government’s push towards digital economy will definitely expand India’s GDP, Minister of State for Finance Arjun Ram Meghwal said today.
Referring to the ongoing debate on impact of note ban on GDP, he said experts are divided on the issue, but stressed that “it will definitely increase”.
Meghwal said that about 23.2 per cent of the economic activity is “shadow economy” and government’s push to cashless transactions will widen the tax bracket.
“Our tax net will increase and this economic activity under shadow economy will start getting counted (in the GDP) …(and hence) GDP will definitely increase,” he said at the ‘Digital and Cashless Economy’ conference organised by industry body CII.
The minister also expressed concern over the high cash to GDP ratio in India in comparison to developed countries and said the demonetisation and digitisation of payments would narrow the gap. In advance countries, the cash to GDP ratio is in range of 4 while in India it is estimated at 12.
Following its move to demonetisation old Rs 500/1000 notes on November 9 last year, the government has been taking several measures to push the country towards less cash economy.
A reward programme for customers as well as merchants has been launched to promote digital payments. The government has also launched BHIM, a mobile app for facilitating cashless transactions.
India’s economic growth is likely to remain muted in the first quarter of this calender year with the GDP likely to grow at 5.7 per cent in the January-March period amid subdued activity, says a report.
According to the global financial services major Nomura, following subdued growth in the first quarter, a V-shaped recovery is on the cards due to remonetisation, wealth redistribution and the lagged effects of lower lending rates.
“We expect growth to remain subdued in the first quarter of 2017 as the activity level remains below its recent peak,” Sonal Varma chief India economist at Nomura said in a research note.
Nomura expects economic growth to remain in a downtrend. As per the report, from 7.3 per cent GDP growth in the July-September 2016, the October-December 2016 quarter GDP growth is likely to slow to 6 per cent and further to 5.7 per cent in the first quarter of 2017 (January-March).
“We expect GDP growth to slow from 7.3 per cent in Q3 2016 to 6.0 per cent in Q4 and 5.7 per cent in Q1 2017,” it said.
According to official figures, industrial production contracted to a four-month low of 0.4 per cent in December, largely due to decline in production of capital goods and consumer goods.
“The moderation in industrial output growth is not a surprise; weak demand since demonetisation has likely forced companies to cut production in order to clear the excess inventory,” Nomura said.
Notwithstanding the improvement in manufacturing PMI in January, industrial output growth should sequentially improve though growth is expected to remain subdued in the first quarter of 2017 as the activity level remains below its recent peak.
“Thereafter, we expect a V-shaped growth recovery to take hold in the second half of 2017, due to remonetisation, wealth redistribution and the lagged effects of lower lending rates,” it added.
“We continue to expect the RBI-MPC (monetary policy committee) to cut the rates by 0.25 per cent on Wednesday and in April with demonetisation hurting growth,” it said.
The brokerage said 60 per cent of 2,000 respondents surveyed by it reported that they have been impacted by the note ban and attributed the “surprising” November industrial growth of 5.6 per cent to lower base effect.
The Economic Survey had pointed towards a 0.25-0.50 per cent dent to growth prospects as a result of the note ban.
The expectation of inflation trending lower — the note ban impacted demand leading to lower price rise — was also cited as another important factor which will influence the MPC to cut rates, it said.
Other factors which will guide the RBI towards lowering the rates include Finance Minister Arun Jaitley cutting the fiscal deficit to 3.2 per cent for next year and the dovish stance adopted by the US Fed.
It also wondered if the RBI will disclose the exact amount of scrapped currency notes received by it and estimated that the not-returned part to be around Rs 50,000 crore of the over Rs 15.55 trillion out in circulation on November 8, 2016.
On inflation, it said the RBI can scale down risks to the 5 per cent March 2017 target from “upside” to “balanced” given the cooling in recent months and its estimate of the headline number coming in at 3.3 per cent for January.
The brokerage also said it expects inflation to come down to 4.1 per cent by March, which is 0.50 per cent lower than the previous estimate of 4.6 per cent.
According to global financial services major Bank of America Merrill Lynch, (BofA-ML) the financial year 2017-18 fiscal deficit target is likely to be the same as this fiscal.
Commenting on the issue, a BofA-ML Official told the media, “We expect Finance Minister Arun Jaitley to target a fiscal deficit of 3.5 per cent of GDP – same as 2016-17 – in 2017-18 in his February 1 Budget, easing the 3 per cent target.”
As per reports, fiscal deficit, the gap between expenditure and revenue for the entire fiscal, has been pegged at Rs 5.33 lakh crore, or 3.5 per cent of GDP, in 2016-17.
According to official figures, fiscal deficit touched Rs 4.58 lakh crore, or 85.8 per cent of the budget estimate for the whole financial year, at the end of April-November.
Commenting on the issue, West Bengal Finance Minister Amit Mitra told the media, “In the best case scenario, the GDP for the current fiscal could go down to 5.5 per cent from the 7.5 per cent it had touched in 2015-16,”
“From an estimate that I have, the growth rate in aggregate will fall over 3 per cent and arrive at 4.3 per cent,” he said.
“This means a loss of Rs 4.7 lakh crore of GDP, this will be extinguished. This is in the worst case scenario…the best case scenario is loss of Rs 3 lakh crore,” Mitra added.
The Indian benchmark indices ended higher for the fourth straight session on Wednesday amid sustained buying by domestic and foreign institutional investors on hopes of positive GDP data to be released later in the day. The market saw surge in buying across bank, capital goods, healthcare, consumer durables, realty, oil & gas and PSUs stocks, tracking firm trends from fellow Asian peers.
The 30-share benchmark index closed trade at 26652.81, up by 258.8 points or by 0.98 per cent, and the NSE Nifty ended at 8224.5, up by 82.35 points or by 1.01 per cent.
In the day’s trade, the BSE Sensex touched intraday high of 26680.55 and intraday low of 26395.5, while the NSE Nifty touched intraday high of 8234.25 and intraday low of 8139.25.
Outperforming the benchmark indices, the broader market ended on robust note with the BSE MIDCAP closing at 12498.62, up by 131.76 points or by 1.07 per cent, while the BSE SMLCAP settled at 12329.65, up by 155.99 points or by 1.28 per cent.
The top gainers of the BSE Sensex pack were ICICI Bank Ltd. (Rs. 265.00,+3.62%), Maruti Suzuki India Ltd. (Rs. 5263.45,+3.39%), State Bank of India (Rs. 258.40,+2.15%), Larsen & Toubro Ltd. (Rs. 1382.55,+2.07%), HDFC Bank Ltd. (Rs. 1199.60,+1.74%), among others.
On the flip side, GAIL (India) Ltd. (Rs. 423.00,-1.16%), Lupin Ltd. (Rs. 1503.20,-0.91%), Cipla Ltd. (Rs. 566.55,-0.45%), Reliance Industries Ltd. (Rs. 992.75,-0.31%), Tata Motors Ltd. (Rs. 459.35,-0.10%), were among top losers on BSE.
On the sectoral front, consumer durables and bank stocks emerged as top gainers, adding as much as 2.46 per cent and 2.2 per cent respectively.
The market breadth, indicating the overall strength of the market, was strong. On BSE out of total shares traded 2948, shares advanced were 1851 while 885 shares declined and 212 were unchanged.
According to the global financial services major, the pace of growth of activity indicators like commercial vehicle sales, credit to the infrastructure sector, power demand and air cargo, among others, slackened in April-May, taking growth rates back to the average 2015-16 levels.
Commenting on the issue, a Citi Group Official told the media, “Although growth rate of activity indicators dipped in April-June of this fiscal, we remain hopeful that the full year GDP growth could be 7.7 per cent.”
The report further noted that it is comfortable holding on to its 7.7 per cent 2016-17 GDP growth forecast for now because of rural economy boost from a better monsoon and 7th Pay Commission impact on public sector salaries.
As per reports, Indian economy grew 7.9 per cent in the March quarter and recorded a 5-year high growth rate of 7.6 per cent for 2015-16 on robust manufacturing growth.
CII-CMC was constituted in 2006.
“Corrosion is widely recognised as one of the biggest challenges faced by automotive industry, and is probably one of the single largest factor causing exterior degradation of automotive surfaces, resulting in huge warranty claims that the automotive manufacturers have to face,” CII said in a release.
It observed the estimated direct cost of corrosion across the world exceeds USD 2.2 trillion, which is about 3-4 per cent of the GDP of industrialised countries.
Corrosion accounts to a loss of about Rs 80,000 crore per annum in India, of which automotive industry accounts for Rs 4,000 crore, the release said.
It is estimated 25-40 per cent of corrosion cost could be saved by implementing proper corrosion management practices.
With the Indian economy growing by 7.9 per cent in the first quarter of the 2015-16 fiscal, a top Indian planner said that the country was making “good” progress to return to the average GDP growth rate of eight per cent recorded between 2003 and 2011, reported PTI.
“Today, there is a good bit of turnaround” in the economy which was not in a “great shape” when the Narendra Modi government came into power in 2014, NITI Aayog Vice Chairman Arvind Panagariya said at a discussion organised by the Asia Society Policy Institute on the two years of the Modi government.
He said for the 2015-16 year, the Indian economy grew by 7.6 per cent and in the last quarter of the fiscal, the growth rate was 7.9 per cent, reported PTI.
Panagariya said he had been saying that the economic growth could touch 8 per cent by the time the 2015-16 fiscal year ended and the 7.9 per cent growth achieved is “pretty good outcome from that perspective.”
He noted that inflation has been contained around five per cent and forex reserves are also in good shape.
“Some of the outcome-related symptoms, related largely to the stabilisation of the economy are beginning to look good,” he said addressing the discussion attended by analysts, executives and diplomats including India’s Consul General in New York Riva Ganguly Das, Deputy Permanent Representative to the UN Tanmaya Lal, former Indian envoy to the UN Hardeep Singh Puri and former US Ambassador to India Frank Wisner.
Panagariya said the “economy is returning to its original path of growth. From 2003-04 to 2011-12 the average growth rate had been 8.3 per cent. I think the economy really needs to return to that level. So far the progress looks generally good.”
He, however, added that there are certain “continuing weaknesses” which are largely inherited.
He cited the example of the steel, construction, textile and banking sectors, saying all of these have “serious legacy issues but it should not distract us from the fact that several of the sectors” such as auto, pharma, software, engineering goods, are “doing well which is what accounts for the aggregate growth of 7.6 per cent.”
He stressed that lot of changes have happened on the policy front, lamenting that many of them have not been recognised.
“There is a lag between the policy action taking place and the outcomes being impacted. It is the fact that policy actions have happened and are continuing to happen and the fact that there is some lag makes me quite optimistic about the growth rate going forward returning to eight per cent plus,” he added.
Panagariya outlined the various measures being taken by the government to boost investment and growth in sectors like infrastructure, including in highways, railways as well as in the innovation, entrepreneurs and energy sectors.
On reforms, he said there has been an end to the bureaucratic paralysis and a “major assault on the inspector Raj.”
He noted that 1178 redundant laws have been repealed and there have been “no allegations of high-level corruption in the two years” of the government.
Panagariya said the Goods and Services Tax is in the works and several major reforms have taken place in the labour laws through the states.
He said the “very important reform” of strategic sales or privatisation is back on the government’s agenda.
He said NITI Aayog is “very much right now” in the middle of identifying the public sector units that ought to be privatised.
“Very soon we will have at least our first list sent out,” he said.
On taxation, he said there have been no new cases of retrospective taxation.
He added that medical and higher education reforms “is also very much on the anvil.