India’s gross domestic product has grown 6.3% in the second quarter of the current year, that is, 0.6 percentage points higher than that of the previous quarter. If the growth rate is still far below than what was achieved in the past, the North Block is jubilant that the economy is coming out of a decelerating growth path.
Whether this could be treated as a turnaround is a debatable issue, but what must be encouraging is that the manufacturing sector’s growth, after nosediving in the first quarter, has given reason for future hopes. Manufacturing output has grown 7% in the second quarter against 1.2% in the first quarter.
Backed by an improvement in the ranking of ease of doing business earlier there was a general perception that a better investment scenario would now attract more funds to industries. In fact, the investment scenario changed significantly last year. After a sharp fall in 2015, proposed investment as also the number of industrial investment proposals filed increased significantly last year. The total number of industrial investment proposals signed increased from 1,998 in 2015 to 2,283 last year. The proposed investment in them increased by a huge 33% during the same period from Rs.3.11 lakh crore to Rs.4.14 crore.
These are only proposals and past experience shows that only a handful of them are actually implemented. But the fact remains that industries have shown faith in the economy to propose so many new units.
Even the foreign investors had turned upbeat last year. The total inflow of FDI increased about 18% last year from $39,326 million in 2015 to $46,402 million.
The decision of the country’s central bank to keep the policy rates unchanged in its latest bi-monthly monetary policy review, however, may dampen the mood, the corporate India feared. Amidst demand for a further rate cut RBI chose to keep the policy rates unchanged. The repo rate, the rate at which RBI gives loans to commercial banks, kept at 6% while the reverse repo rate, the rate at which the RBI takes loans from commercial banks, remained unchanged at 5.75%.
The policy rates were left untouched probably because the Monetary Policy Committee felt that various structural reforms introduced in the recent period will likely be growth augmenting over the medium to long-term period by improving the business environment, enhancing transparency and increasing formalisation of the economy. If so, the lowering of interest rate could wait as both the wholesale and retail inflation rates are once again on the rise.
Back to industry’s recent performance, the core sector industries which form the base of the sector has done consistently well in recent months. The index of the eight core sector industries grew 4.7% in both September and October, 2017.
Backed by the robust performance of coal, natural gas, steel, fertilisers and electricity, the eight core sectors recorded a
six-month high growth rate of 4.7% in September. Moreover, the growth has been far more broad-based this time. The broad-based improvement in core-sector growth is expected to raise the overall index of industrial production too. The core infrastructure industries have a combined weightage of about 40.27% in the IIP.
Steel sector moves forward
Despite the recent turmoil and the problem of mounting liabilities of the steel companies, the steel production recorded a spectacular turnaround in 2016-17. Aggregate steel production crossed the 100 million-mark last year recording a more than 10% increase over the previous year. In the first six months of the current year, between April and October, the steel production grew by a huge 15.8% -- the index of production up from 103.1 in April to 119.4 in October, 2017.
Interestingly, India is now seen as a ‘bright spot’ for the global steel production growth following the government’s move to augment capacity and demand from the construction, automobile and infrastructure sector. Steel majors Steel Authority of India and Tata Steel are expected to drive the growth in steel output according to a recent report by BMI Research, a Fitch group company. “The government has been spearheading the push towards the boost in steel production capacity, with upgrades being made to existing steel mills and state-owned companies stepping in to build new steel plants,” it said. The country’s share of global steel production will accelerate from 5.4% in 2017 to 7.7% in 2021, the report said.
This reflected in the financial performance of the steel companies. The private sector steel major, Tata Steel has more than doubled its net profit in the first half of the current year – up from `825 crore in the first half of 2016-17 to `1,801 crore now. Net sales have increased 22% during the same period. And if the public sector Sail has incurred loss during the, it has actually brought down the amount considerably. Its net sales have increased 25% during the period.
Cement industries continue to be in trouble
Another core sector industry, cement, whose growth is directly linked to infrastructure development, too, however, witnessed a decline in production in 2016-17 for the first time in 15 years. The analysts blame demonetisation as the primary cause for this fall.
After the government withdrew high-value currency notes, the growth of cement production slowed down to 0.5% in November and further to 9% in December. The aggregate production declined by 1.2% in 2016-17 against a 4.6% rise in the previous year. This is reflected in the decline in the growth rate of GVA of the construction sector.
Interestingly, despite cement demand in 2016-17 being the weakest in ten years, average prices have increased about 5% as they are more of a function of supply moderation and pricing discipline that demand growth.
It appears that the cement industry has not yet come out of the bad spell. Production declined by 2.7% in October, 2017 over October, 2016. Its cumulative production index declined by 1.6% during April to October, 2017-18 over the corresponding period of previous year.
Fertlisers production fall despite good monsoon
India’s fertiliser industry, the third largest in the world in terms of production and the second largest in terms of consumption seems to have been failing to grow to its potential. Total production of fertilisers declined 1.1% in 2016-17 against a rise of 7.7% only two years ago, in 2014-15. This was despite a good monsoon and a significant increase in net sown are in the current year.
As it is, the government of India has been consistently pursuing policies conducive to increased availability and consumption of chemical fertilisers in the country to raise productivity and aggregate output.
But since the health of the fertiliser sector is tied closely to the health of the agricultural sector, the growth prospect of the industry would depend on making Indian farmers more profitable and globally competitive.
Automobile industry moves faster
The good run of the automobile industry seems to have continued uninterrupted. A total of 253,14,460 vehicles were produced in 2016-17 against 2,40,16,068 in the previous year. And its performance has even strengthened in the current year. The industry produced a total 17,097,096 vehicles including passenger vehicles, commercial vehicles, three wheelers, two wheelers and quadricycle in April-October 2017 as against 15,811,071 in April-October 2016, registering a growth of 8.13% over the same period last year.
The sale of passenger vehicles grew by 7.67% in April-October 2017 over the same period last year. The overall commercial vehicles segment grew by 6.04% in April-October 2017 as compared to the same period last year. However, three wheelers sales declined by (-) 6.27% in April-October 2017 over the same period last year. Two Wheelers sales registered a growth at 8.09% in April-October 2017 over April-October 2016. Within the two wheelers segment, scooters and motorcycles grew by 14.63% and 5.93%, respectively.
In April-October 2017, overall automobile exports grew by 10.37%. Two and three-wheeler segments led the export growth registering an increase of 15.87% and 17.93%, respectively.
Software industry rides on bumpy road
By its own making and due to external forces beyond its control, India’s $ 150 billion software industry finds itself at a tipping point. Failure to adapt to rapidly shifting technology needs, Brexit and changes in immigration and visa norms have put the industry cross-roads. Hiring has slowed down and the revenue and profit growth for the top companies have gone down sharply.
The revenue of TCS, the leader witnessed 3.1% increase during the first six months of the current year against the same period last year. Net profit has grown 5.8% during the same period. Infosys, another IT major has increased its revenue and net profit by 3.1% and 5.1%, respectively, in the first half of the current year.
This is significant, for, the software industry is the biggest employment generator in the country and thus its performance has much bigger implications for the economy. Look at the figures; TCS, the leader, had a total workforce of 3,89,213 as on September 30, 2017. Infosys Technologies, the second largest software company in the country had an employee strength of 1,98, 440 as on September 30, 2017.
The slowing down in hiring in the software sector or retrenchment of old employees, as has been the case in recent months, will spell disastrous for the country. As such, the job growth in the economy has decelerated sharply in recent years and now lower hiring in the IT sector will make the situation even more difficult.