An Economic Turnaround On the Cards?

The Great Indian slowdown

Of late there has been a lot of talk about the ‘great slowdown’ in the Indian economy. Nostradamus-like prophecies of gloom and doom are being made by academicians and economic experts. The GDP figure of 4.5% is being waved around to pontificate on the great economic slump from a robust and healthy 7.4% of the previous year. The former CEA, Arvind Subramanian, in his Working Paper, ‘India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications’ of June 2019 warned that there was a significant overestimation of growth. Subramanian and Josh Felman further built on this hypothesis in the paper, ‘India’s Great Slowdown: What Happened? What’s the Way Out?’ published in December 2019. In a recent television interview with Prannoy Roy of NDTV, the former CEA pointed out that the growth of consumer goods production had ground to a halt and exports, imports, and government revenues were close to negative territory. All these suggest that the Indian economy is in the throes of what Subramanian calls ‘the great Slowdown’.

Attempts to Boost Economy

The government and RBI have been trying to nurse the economy back to health. Major measures have been announced. Most notably, the government introduced a large corporate tax cut to prop up a languishing economy and revive investment. Recently it announced a plan to privatize four major public sector undertakings (PSUs). Recapitalization of public sector banks and now 102 lakh core plan for infrastructure projects were all salutary attempts to reverse the down turn in the economy. Meanwhile, the RBI cut interest rates by a cumulative 135 basis points during 2019, more than any other central bank in the world in the hope of reviving lending. However, much to the frustration of policy makers, the economy seemingly refused to respond to its dedicated ministrations. So is the economy really headed for the intensive care unit as Subramanian and Felman suggest or is there hope for reversal in the downtrend.

Is the winter of economic Discontent over?

There is no gainsaying that the economy has been through an exceptionally bad patch. And yet a close perusal of some economic indicators suggest that the battle hardy Indian economy may have survived the slump. December figures of sales in the coal and steel sector suggest that things are looking up. Jindal steel & Power Ltd (JSPL) has recorded the highest ever quarterly domestic production of crude steel and related products with a 22 per cent year on year (Y-o-Y) growth in the third quarter ended December 2019. SAIL achieved the highest ever sales in a month during December 2019 clocking a growth of 47 percent over the corresponding period last year. Rashtriya Ispat Nigam Ltd (RINL) also registered an impressive growth in exports of 119 percent and the sale of value-added steel of 79 percent. India's coal sector also seems to be turning around if the December production figures are to be believed. Coal India produced 58.02 million tonnes of coal in December reflecting a 7.2% jump with best production figures for the said period.

The auto sector, hit by strong economic headwinds, is also showing signs of recovery Although the auto production is down by about 16 percent, the sales of utility vehicles have shown an upswing of about 3.83 percent in November 2019. Ashok Leyland has shown a strong growth in commercial vehicle segment in December.

The IHS Markit India Manufacturing PMI rose to a seven-month high of 52.7 in December 2019 from 51.2 in the prior month. The Quarterly data released by Centre for Monitoring Indian Economy (CMIE) also gives cause to cheer. New projects have risen by 37.4 per cent on a year-on-year basis. The new projects have seen a rise despite a fall in capacity utilisation. The proportion of ‘stalled project’ is down 81.8 per cent to Rs 0.58 trillion. In fact, India’s Capex data published by CMIE for third quarter of FY20 shows a sequential improvement in most investment variables after two quarters of sharp declines. There is also a massive off take of rental and co-sharing commercial space in Metros like Hyderabad, Delhi (NCR) and Bangalore.

As far as revenue collections are concerned, the indirect taxes showed a healthy increase with gross GST revenue collections at ₹1,03,184 crore, in December, the second month in a row. This is a 9% year-on-year jump in collections. Corporate advance tax collections till December show a fall of 5.2 percent fall despite a staggering ₹1,45,000 crore tax bounty to the corporate sector. Personal advance tax however shows an uptrend of 3 percent.

These figures suggest that the possibility of an economic revival cannot be dismissed out of hand. Green shoots of revival can be seen. What keeps my optimism on an even keel is that the stock market, ever sensitive to economic triggers is booming. The SENSEX Stock Market Index reached an all-time high of 41809.96 in December of 2019. Nifty50 index rose 0.80% to 12,282 on Jan 1, 2020, a record closing high, led by gains in banking, metal, energy and auto stocks. Clearly, investors in the stock market are bullish on the Indian economy. Perhaps the backdoor channel checks of the bulls yielded news of economic revival which the public at large as also the economic experts could not foresee. The stock market has clearly taken cognizance of this revival and is bullish. Whether such a revival will trace a slow u-shaped path or reflect a sharp V-shaped recovery only time can tell. Wait and Watch should be our mantra.