New Delhi: The Indian economy is in doldrums, as screaming headlines tell us almost every day. The International Monetary Fund (IMF) had on Tuesday lowered India's growth forecast to 6.7 percent for 2017-18 from 7.2 percent estimated earlier. The government has been in a huddle, first talking of a comprehensive stimulus package to kickstart growth and then reviving the PM’s Economic Advisory Council (PMEAC). In its report, the PMEAC has suggested some ambiguous measures to boost job creation and revive investments but stands divided on whether a stimulus package is indeed needed to catalyse economic growth.
In this scenario, it is interesting to see that some lead indicators seem to point towards a mitigation of the aftershocks of demonetisation and GST rollout. No, this may not mean that growth recovery has started and we are back from the brink but merely that the decline may have begun to bottom out. These lead indicators are: sales of cars and two-wheelers, trucks and heavy vehicles have uncharacteristically risen in the second quarter ended September; traffic at major Indian ports is up in the last six months and even the domestic air traffic grew in double digits while straining India’s airport infrastructure.
As per data released by the Society of Indian Automobile Manufacturers (SIAM), medium and heavy commercial vehicle dispatches to dealers grew 20 percent of by a fifth in the quarter ended September over the year-ago period. It is interesting to see that in the same quarter of last year, there was a de-growth in M&HCV sales by 14 percent. In light commercial vehicles, dispatches grew 21 percent against just 11 percent increase in the same quarter last year. Sneha Prashant and Abhishek Kumar Jain of HDFC Securities said in a note to clients that pick-up in infra segment and revival in freight rates boosted demand in the MHCV segment, with Tata Motors and Ashok Leyland reporting 25 percent and 32 percent growth respectively. "We expect MHCV volumes to gather momentum, with pick-up in economic activity and pent up demand," the two analysts said.
Similarly, according to data from the Ministry of Shipping, major Indian ports recorded growth of 3.24 percent and together handled 326.4 million tonnes of cargo between April-September against 316.1 million tonnes handled during the corresponding period of previous year. Seven of the 12 major ports in the country recorded traffic growth in the first half of the fiscal. These included ports in Kolkata, Paradip, Chennai, Cochin, New Managlore, Mumbai and Jawaharlal Nehru Port Trust (JNPT) in Mumbai. Cochin Port registered the highest increase in traffic at 19.62 percent followed by Kolkata, New Managalore and Paradip at 12 percent.
And in domestic air traffic, 754.11 lakh flyers took to the Indian skies against 644.68 lakh during the corresponding period of previous year, a growth of almost 17 percent. Robust, double digit air traffic growth has continued throughout this fiscal though the rate of growth has decline somewhat.
This piece LiveMint spoke of a similar demand uptick and possible reversal in growth decline by collating sales data for August. It quoted brokerage Jefferies Group to say that sales of two-wheelers, commercial vehicles and tractors, power generation, steel production, airport traffic and fund-raising from equity markets by businesses reported faster annual growth in August than in the previous month.
So is the economic decline bottoming out, finally or is it too soon to believe these lead indicators? Some analysts believe at least four to six months of sustained sales/traffic growth in vehicles, port and airport traffic is needed for a firm trend to emerge and it may be too soon to cheer. They also say that sales growth in autos is likely being driven by a whole range of factors – discounts, regulatory decisions, availability and rates of finance – and not necessarily by a firm revival in economic demand. But it is also true that any uptick in commercial vehicles has been usually taken as an early indicator of a revival in the economy.
Prasad Koparkar, Senior Director CRISIL Research told Firstpost, "We believe that economic recovery is likely to gather pace in the second half of the fiscal. But it will be largely driven by consumption demand as private investment continues to remain weak. This is reflected in our view that during FY18 LCVs will grow at about 15 percent while MHCV will be flat. The strong 30 percent Q2 growth in MHCV was driven by factors such as short-term supply constraints in Q1 due to shift to BS-IV. We do not expect it to sustain in H2, although Q3 may show growth due to base effect on account demonetisation in the last fiscal.”
But analysts at Morgan Stanley have said in a note to clients they expect the economy to now have a “clear runway for growth” with both consumption and exports picking up. “Indeed, discretionary consumption such as passenger cars and two-wheelers have held up well, while sales of medium and heavy commercial have improved in the recent two months, suggesting some uptick in investment related activity. On exports, the strength of growth that our global economics team expects should mean that exports growth will remain supportive”.
And brokerage Motilal Oswal says “the worst is behind” as far as GDP growth is concerned and recovery should start now, albeit slowly. Perhaps the PMEAC would like to hasten its growth recipe, now that some lead indicators already point to green shoots.
Updated Date: Oct 12, 2017 17:52 PM