Govt has no silver bullet, the problem is demand slowdown and not policy, says Crisil

Crisil believes the government has to pick up the gauntlet and try to push the investment cycle

Sluggish demand has been a key area of concern for majority of the Indian companies over the first nine months of fiscal 2015, while very few firms were affected by the steady pace of activity on the policy front, a study by Crisil showed.

A comparison of revenue and operating profit growth with nominal GDP growth showed that 285 firms under-performed, the rating agency said. It has done an analysis of the results of 411 companies from the National Stock Exchange’s CNX 500 index.

In its report ‘modified expectations’, Crisil has said investment cycle will take longer than expected to kick-start, but highlighted that the government is putting in place building blocks which will improve the country’s crucial potential-growth rate.

“The government can’t push demand up in the short term because there is no monetary and fiscal silver bullet. We expect private consumption to pick up only gradually this fiscal, which, in turn, will provide some impetus to demand. But it won’t be enough to lift extant capacity utilisation to levels where the private corporate investment cycle needs to be kick-started again. A meaningful recovery in capex is not seen till fiscal 2017,” said Dharmakirti Joshi, chief economist, Crisil.

The report also underlines a host of steps taken by the government to address growth constraints, but says passing of the crucial bills in the Rajya Sabha will remain a tough task for the centre.

“We believe, will ensure that growth sustains beyond fiscal 2016. But major reforms will remain a tough task given the government’s lack of support in the Rajya Sabha, and the government will have to show exceptional statecraft to cobble up consensus to pass crucial Bills,” the report said.

In the interim, the rating agency believes the government has to pick up the gauntlet and try to push the investment cycle through public investments.

“We also look forward to steps that re-kindle agriculture growth and ameliorate distress in farms. India badly needs durable solutions to improve farm productivity and the through crop insurance schemes rather than loan waivers,” the report said.