Saturday, September 14, 2013

Growth Expectations Rebound


Growth Expectations rebound:
 CRISIL in its analysis reports that the growth rate could at best stabilise at 4.8% at the end of the current fiscal and the rupee may rally back to Rs.60 a dollar. This estimate is on the basis of a rebound of growth of agricultural sector to more than 4% stabilising the food prices and the CPI.

This is a big guess considering the time lag between production and its reach to the markets. Second, its estimate of manufacturing sector does not look realistic. The capital goods imports that have surged by75% the last eight years could be generating yields in the next six months. Its survey of 2841 companies reveals that the rupee depreciation had impacted only 6% of them. Therefore, it is just logical that CAD did not have adverse impact on the manufacturing sector as feared. However, what happened actually is the neglect of SME sector by the financial sector on one side and inadequate linkage from the large corporate sector on the other. If the capacity utilisation of the capital goods sector improves with core sectors like coal, energy, oil and infrastructure showing a mark-up, it is possible that the growth of manufacturing sector could surge. The key exports that have great potential are in readymade garments and pharmaceuticals. Wherever one goes in the world, we would find the Chinese and Bangladesh readymade garments with local brand linkages. Actually, this sector has been our forte historically. It is the curse of the sector that it did not have a stable encouraging policy for investments and appropriate incentives. This is an area that does not brook delay. Pharmaceuticals are already on the march and hopefully they would establish as global leaders in export markets.
The cabinet sub-committee has just cleared Rs.1.20lakh crores of investments in infrastructure just on the eve of this report. The FDIs started looking up and the FIIs also started flowing in during the last ten days. The capital markets looked consistently buoyant during the last five days. If this trend continues, it is very likely, that the forex markets also stabilise.

Coming to the Services sector, there has been a fall in growth rate on global cues. It is unlikely that this sector would deliver growth rates of the nature seen in the last decade and half. It would appear that we have to contend with lower growth rates in the next few years unless dramatic essentially Indian innovations surface. The innovations are taking place more in the mobile technology areas and they are all in countries other than India.  Trade gap has lessened by 23% during last month. All the hope of rebound is contingent on oil prices not upsetting our import basket.
I foresee that the growth in view of the above at the end of the year can stabilise at around above 5percent this fiscal – could be at what the Monetary Policy of last quarter predicted at 5.5percent

 Published in Business Digest September 10, 2013