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Bumpy road to recovery for Indian economy, says Citigroup

Tuesday, August 09, 2016

It has been a bumpy road to recovery for the Indian economy as the average investment index for fiscal year 2015-16 is almost 35% lower than the peak of the earlier cycle in financial year 2006-07, says a Citigroup report. According to the global financial services major, the monthly investment indicator improved smartly in February- March 2016 to a five-year high level on the back of improvements in intermediate goods like diesel, power, cement, bitumen, capital goods imports etc as well as good prints on indicators of movements of goods.

However, the trend has not sustained in April-May 2016. A strong investment recovery is essential for India to sustain high GDP growth rates in the medium term. In fact, lack of growth in private investment has been one of the cause of concerns for the economy. The monthly composite investment indicator was constructed to track the timely progress of the investment cycle and also provide a historical perspective on the stage of the current cycle as compared to the earlier ones.

Citigroup has used 14 different monthly indicators and three quarterly indicators to construct the MII. The indices include production indicators, intermediate goods, indicators of movement of goods, an indicator of policy uncertainty; new order book, capacity utilization levels and an inventory to sales ratio. According to the report, while the earlier investment cycle peaked in fiscal 2006-07 and lasted till financial year 2007-08, investments collapsed in 2008-09, following the global financial crisis but the rebound was strong in 2009-10 as India was less impacted and a large policy stimulus was announced.

The report said after four years of slowing investment largely owing to policy paralysis and adverse macros, a nascent recovery was seen in FY2014-15, as the new government was formed. "That recovery process is continuing but has not yet gathered any further momentum," Citigroup said adding that the average investment index for FY16 is almost 35% lower than the peak of the earlier cycle in FY07 and 28% lower than in FY10.

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