29 Years
Home > Business & Investment > Official Rhetoric Encouraging, But Economy Needs Push

Official Rhetoric Encouraging, But Economy Needs Push

Monday, June 02, 2014
By Deepak Sahijwala

The decisive mandate in the just concluded general election has bolstered investor confidence and raised expectations of fast-paced decision-making and economic reforms. Ensuring a sustained, healthy pace of growth will, however, require much more. Can the Modi government walk the talk? More so now when everybody including industry associations and rating agencies alike, are talking bullish on the economy...

“Clarity, certainty and timely implementation of policies is what industry desires and when translated into action, a sound basis will be set for investments to flow in. In our Economic Agenda, the need for the Prime Minister to effectively communicate economic priorities has been spelt out," says an optimistic FICCI President, Sidharth Birla, adding “ Distribution of work to Ministers in generating detailed plans sends strong positive signals about the intention of the Cabinet to function as a cohesive group. This will ensure a conducive economic climate. Building trust and confidence in bureaucracy will improve governance, speed up decision making and restore credibility in our institutional mechanisms.”.

And that mood seems to have set in across India Inc, its industry associations and rating agencies alike, all of who believe that the worst is behind us. And most believe that GDP growth in FY15 will be better than FY 14, perhaps even if the monsoons are disappointing.

There is “a wave of optimism in the economy after the 10 point plan charted out by the new PM which focuses most visibly on investments in infrastructure, time bound action and improved co-ordination between the Centre and State Governments to ensure smooth implementation of new Government policies. Such a method of governance is likely to foster growth in FY15,” says Care Ratings in a report on its outlook for FY15.

As of now it's forecast for GDP growth in FY15 remains between 5.2 - 5.5%. India’s GDP growth for FY14 came in at 4.7%. Nevertheless, it says “that the recovery will remain gradual in nature and a significant turnaround will be witnessed late in the fiscal”.

However, Crisil Research believes that in FY15, under the assumption of normal monsoon, “we expect GDP growth to rise to 6%”. This, it says “will be led by higher industrial growth driven by infrastructure projects, many of which were cleared last year. But if monsoons fail – the Indian Meteorological Department has assigned 60% chance of El Nino phenomenon occurring this year - GDP growth could be lower, at 5.2%.” Still better than the GDP growth for FY14 which came in at 4.7%.

Crisil feels that “the government’s top priority now should be to revive the economy by improving the business climate (through a swift resolution of issues bedeviling iron ore and coal mining, among others) and fast-tracking the project pipeline through greater clarity on land acquisition and speedier environmental clearances. To improve and fulfill India’s long-term growth potential, it is equally imperative for the government to exercise fiscal discipline, lower inflation, improve bank asset quality and revive manufacturing. Some of these steps can revive sentiments in the short term, but will significantly impact growth in the medium term.”

Building on the broader optimism that the new government will initiate reforms after two successive years of sub 5% growth, DBS Bank, India says  “PM Modi outlined ten priorities for his team. These revolve around building confidence in the bureaucracy, minimal government interference and introducing infrastructure and investment reforms. While these are still broad strokes, there is an emphasis on improving governance alongside structural recovery”.

After consultation with the ministry’s officials, cabinet members need to set the first 100-days’ agenda, which will be up for discussion at July’s parliament session. The first parliamentary session is scheduled for 4-11 June.

According to DBS “Yet so far, the official rhetoric has been encouraging, with the Finance Minister reportedly reviewing cause(s) of weak revenue collections last year and seeking a thorough review of the nationwide GST initiative. As the fiscal numbers are combed through, it might become evident that meeting the interim fiscal target will be an uphill task. Nonetheless, it will be important to establish a medium-term road map for fiscal consolidation and plan of action to meet the nominal targets”.

On the investment policy, DBS Bank believes that “a liberal foreign investment framework is reportedly in the works, which might see the Finance Ministry permit at least 49% FDI in most sectors, except the strategic industries, according to the press. Bulk of these approvals might be brought under the automatic route, to ensure that the domestic companies have a controlling stake in the business interests. This cap is expected to be a single-limit, including all types of investors – non-residents, FII, FDI etc. Provided the government is able to ensure clarity, regulatory ease and institutional support to the foreign investors, there is likely to be ample interest.”

Incidentally, despite the domestic slowdown and policy paralysis last year, FDI continued to trickle in and remained relatively stable at circa 1.5% of GDP in FY13/14.

GROWTH Indicators
India’s GDP growth for FY14 came in at 4.7%. This is lower than the government’s advance estimate of 4.9% growth and only slightly above 4.5% growth in FY13. Q4FY14 failed to see any revival in industry and services, and GDP growth was in fact lower in the second half of FY14 at 4.6%, compared to 4.9% in the first half of FY14. Financial / business services and agriculture drove growth in FY14 while manufacturing continued to be a laggard. Of late, there has also been an uptick in mining and utilities (due to higher electricity production). On the demand side, net exports contributed to more than half of GDP growth because of a fall in imports and an increase in exports. However, Crisil research has opined that some sectors may be looking up, while some could continue to lag...

Looking up?

  • Agriculture: A good monsoon pushed agriculture growth to 4.7% in FY14; total foodgrain production rose nearly 3%. However, current climate forecasts indicate increased likelihood of a deficient monsoon in FY15 that could affect agriculture production.
  • Financial, insurance, real estate and business services: This sector contributed more than half of the overall GDP growth in FY14 although, in terms of size, it is only 20% of the economy. It grew by 13% on the back of a rise in business services exports and aided by a pick-up in bank deposit and lending growth in H2FY14 (following a surge in non-resident deposits). Improving global prospects could continue to favour this sector in FY15.
  • Electricity: Electricity production rose to 961.5 billion units (BU) in FY14 from 907.2 BU in FY13 mainly on account of capacity additions (nearly 38 GW) over the past 2 years. CRISIL Research expects electricity production to grow by 4-5% in FY15 due to capacity additions (around 11 GW) as well as a marginal increase in PLFs led by an improvement in coal supply.
  • Mining: The sector has gathered pace in recent months; fall in output was lower at 0.8% in H2FY14 compared to 2% in H1FY14. Mining output is expected to pick up in the coming quarters due to the lifting of the regulatory ban on mining in Karnataka and Goa. Prior to the mining ban, these two states accounted for 4-5% of the country’s mining output. Mining ban in other major mining states with significant share in the country’s output – Andhra Pradesh and Chhattisgarh (about 13% each), Odisha (10%), and Gujarat and Madhya Pradesh (about 8% each) – is still awaiting resolution. Fast-tracking decisions in this sector will immensely benefit these states and improve the overall availability of mineral resources.
  • Net exports: A 2.5% fall in imports and 8.4% growth in exports improved the net export position and contributed 54% to overall growth in FY14. Although the continued global recovery will support growth in exports, the net export position will be less favourable in FY15 as imports will pick up gradually in line with domestic growth

Still lagging?

  • Trade, hotels, transport and communication: Accounting for nearly 27% of the economy, this sector is almost entirely driven by demand from the private sector and has been facing the wrath of declining consumption and investment demand as well as the spillover effects of sulking industrial growth. In FY14, the segment grew by 3% compared to 5.1% in FY13 however growth saw some revival in the second half of FY14.
  • Manufacturing: The sector, which is 16% of the economy, continued to suffer as output fell 0.7% in FY14 as the impact of weak domestic demand outweighed the benefit from rising exports. Private consumption growth was higher in the H2FY14 possibly reflecting better farm incomes, but growth for the full year was low at 4.8%. High inflation and weak income prospects dented consumer sentiments. Investment growth fell by 0.4% in H2FY14 and for the full year remained flat. Investment rate therefore fell to 32.3% in FY14 from 33.9% in FY13. An improvement in investment efficiency is critical to encourage fresh investments and drive growth.
No Comments Posted
City news
Elderly woman drowns in sea at Marine Drive
Mumbai police prosecutes Ind MLA Bachchu Kadu san
The patient, a banker, came to Mumbai all ...
I am 28 yrs old, married four years back to a gir
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)You will be in the mood to take a few chances today. If you are positive and confident about your aims and aspirations do not hesitate to take risks. A good business proposal is worth considering. If you expect much from your beloved in a love affair you have to first learn to give. Relationships are built on love and trust.
Tarot for Love
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)What the cards say: Just chill Path: Seek harmony. Don’t doubt. Have faith Ally: Pisces who show you the path of love. Be a little careful with critical Virgo Card for the week: Tarot key no. XIV Temperance. Will bring joy and satisfaction
- Advertising -
Alright, we might be talking about fitness that’s
There’s nothing wrong with consuming alcohol, if
We all know the benefits of vitamin C and leafy g
Read More