But a dampener came the very next day when the Index of Industrial Production (IIP) for December 2019 showed that factory output had shrunk 0.3% while retail inflation had risen to 7.59% in January 2020. Then, on February 13, Standard & Poor’s retained the BBB- rating for India — the lowest in the investment grade — even as ratings agency predicted better growth ahead for the country. On February 14, a Bank of America report said that as per its India Activity Indicator, while the worst was over “… the bottom is turning out to be is far deeper and longer than we envisaged.”
Thus, it appears not everyone shares the finance minister’s optimism.
R Gopalakrishnan, a former Tata Sons director, says: “From my conversations with people in the automobile, auto ancillary, steel and consumer goods sectors, I have not seen any green shoots. I fear the green shoots may well be in the minds of the observer.”
Beyond IIP & PMI
A revival in the GDP growth rate is key to the Indian economy. Economic growth had slowed to an 11-year low of 4.5% in the July-September quarter of the current financial year.
The purchasing managers’ indices (PMI) for manufacturing and services had brought in a dose of optimism at the beginning of February. At 55.3 for January, the manufacturing PMI was at an eight year high. So how does this high optimism for the future coexist with the IIP contraction of December 2019?
An economist at a large bank, who does not want to be identified, says PMI is not a relevant indicator for India. The person says some experiments the bank has run with PMI data show the numbers do not quite work in the country.
At automaker Mahindra & Mahindra (M&M), chief economist Sachchidanand Shukla keeps a heat map of a long list of indicators to track changes in investment and consumption in the country. He says so far, the heat map has given out a mixed verdict, with only a few indicators, like cement demand, railway freight, air cargo, PMI and central government spending, showing positive change. The negatives are capital goods production, imports and spending by state governments.
Indranil Sen Gupta, Bank of America’s India economist, says: “Growth in our India Activity Indicator slipped to 3.1% in December 2019 from 4.5% in October-November and 3.15% in August-September. A key driver was the fall in real cash demand due to higher CPI (consumer price index) inflation after a spike in onion prices. Adjusted for this, growth in the India Activity Indicator was still an anemic 3.8%, and 5 out of the 7 components of the indicator deteriorated in December from November 2019.”
Shukla of M&M says the biggest factor handholding the weak economy is central government spending, which went up 32% year-on-year in the October-December quarter.
Govt spending the key
Sudip Ghose, managing director of VIP Industries, too appears optimistic like the finance minister, even though the luggage-maker recorded flat revenue in the October-December quarter. “The Reserve Bank of India has tried to increase liquidity by easing norms for auto and retail lending. The monsoon was good, so the rabi crop should do well. Unlike last year, there are no big elections in the first half of the year either. So from April, things may look better.”
Shukla, however, says a lot continues to depend upon how much the government is spending. “Going forward, if the central spending weakens, key indicators may weaken too. Yet, the government may target a certain level for fiscal deficit and slow down spending.”
Rare growth story
On February 12, IT industry body NASSCOM released its annual numbers, stating that the industry would grow at 7.7% in 2019-20 as compared to 7% in 2018-19.
IT is among the few industries showing better growth over the previous year. While IT exports grew by 8.1%, the domestic IT market grew at a slower 6.5%. However, this export-oriented sector too is looking at more government spending.
NASSCOM chairman Keshav Murugesh told ET Magazine that there is a digital component in nearly all government schemes and the procurement process for them should start soon.
“We will see various request for proposals for smart city projects. The universal procurement platform is also getting started and for the domestic sector, we feel government spending will provide a boost,” he says.
The wider body of indicators have thrown up a mixed bag and Sitharaman now has to shoulder the responsibility to keep the “green shoots” alive, through continued spending.