Economy on the rebound, to pick pace in Q2: Government
, ET Bureau|
Updated: Oct 03, 2017, 11.24 PM IST
NEW DELHI: The government sees the decline in growth as a hiccup and expects the economy to pick up pace in the fiscal second quarter as teething troubles with GST get resolved and the effect of demonetisation wanes. The latest high-frequency indicators such as commercial vehicles sales, core sector growth and manufacturing PMI bolster this contention.
"The economy is going through a phase of readjustment to a system of formalisation that entails greater tax compliance and transparency in financial transactions," finance secretary Ashok Lavasa said. "Things are beginning to settle down and we are on the recovery path." To be sure, some experts regard the decline as being more structural in nature, having begun a year ago, predating demonetisation.
The finance ministry does not share that view. "This is a one-off quarter," said another senior finance ministry official. "We expect things to recover quickly. There are indications of a bounce-back."
The official said it was expected that destocking of goods prior to rollout of GST would have some impact on growth, but restocking has been taking place with the festive season well underway. That should be reflected in the coming quarters, he said.
Most manufacturers had stopped production before July 1 to get rid of inventory, choosing to start manufacturing afresh after the tax rolled out. The manufacturing sector grew by just 1.2% in the June quarter, reflecting this impact.
Niti Aayog vice-chairman Rajiv Kumar had told ET on Monday that he believes the economy bottomed out in July.
POSITIVE DATA
The recovery in commercial vehicle sales is seen as an early sign of recovery in investment activity. Tata Motors’ commercial vehicle sales rose 29% in September from a year ago. Car sales also rose. A slow pickup in property is also being seen in some areas, especially tier three and four cities.
Core sector growth rebounded to a five-month high of 4.9% in August while manufacturing PMI came in at 51.2 in September on the strength of new orders, marking the second consecutive month of expansion. The corporate sector’s credit profile also seems to be improving slowly and fund-raising by companies has been robust.
According to rating agency Crisil, the credit ratio — upgrades to downgrades — improved to 1.88 in the first half of the current fiscal compared with 1.22 for all of fiscal 2017. "Barring stressed assets, Crisil expects corporate credit quality to continue recovering, driven by further improvement in balance sheets," it said in a report. "Interest rates, stable operating cycles, firm commodity prices and improving domestic consumption demand will also help."
Companies have already raised nearly Rs 35,000 crore through IPOs this year, compared with Rs 29,000 crore in the whole of the last fiscal. Corporate debt issuance has also picked up pace. Still, some experts are being cautious. "There are some positive signs... But it may too early to jump to a conclusion," said Crisil chief economist DK Joshi.
While the finance ministry is averse to relaxing fiscal goals, it is working on steps to provide help to select sectors, especially ones that can create more jobs. Some measures for small-scale industry, textiles and the export sector could be announced soon, officials said.
The government is also pushing central public sector undertakings to frontload their capex. The finance ministry is not keen to relax the fiscal consolidation target of 3.2% of GDP for FY18 at this juncture.
"The economy is going through a phase of readjustment to a system of formalisation that entails greater tax compliance and transparency in financial transactions," finance secretary Ashok Lavasa said. "Things are beginning to settle down and we are on the recovery path." To be sure, some experts regard the decline as being more structural in nature, having begun a year ago, predating demonetisation.
The finance ministry does not share that view. "This is a one-off quarter," said another senior finance ministry official. "We expect things to recover quickly. There are indications of a bounce-back."
The official said it was expected that destocking of goods prior to rollout of GST would have some impact on growth, but restocking has been taking place with the festive season well underway. That should be reflected in the coming quarters, he said.
Most manufacturers had stopped production before July 1 to get rid of inventory, choosing to start manufacturing afresh after the tax rolled out. The manufacturing sector grew by just 1.2% in the June quarter, reflecting this impact.
Niti Aayog vice-chairman Rajiv Kumar had told ET on Monday that he believes the economy bottomed out in July.
POSITIVE DATA
The recovery in commercial vehicle sales is seen as an early sign of recovery in investment activity. Tata Motors’ commercial vehicle sales rose 29% in September from a year ago. Car sales also rose. A slow pickup in property is also being seen in some areas, especially tier three and four cities.
Core sector growth rebounded to a five-month high of 4.9% in August while manufacturing PMI came in at 51.2 in September on the strength of new orders, marking the second consecutive month of expansion. The corporate sector’s credit profile also seems to be improving slowly and fund-raising by companies has been robust.
According to rating agency Crisil, the credit ratio — upgrades to downgrades — improved to 1.88 in the first half of the current fiscal compared with 1.22 for all of fiscal 2017. "Barring stressed assets, Crisil expects corporate credit quality to continue recovering, driven by further improvement in balance sheets," it said in a report. "Interest rates, stable operating cycles, firm commodity prices and improving domestic consumption demand will also help."
Companies have already raised nearly Rs 35,000 crore through IPOs this year, compared with Rs 29,000 crore in the whole of the last fiscal. Corporate debt issuance has also picked up pace. Still, some experts are being cautious. "There are some positive signs... But it may too early to jump to a conclusion," said Crisil chief economist DK Joshi.
While the finance ministry is averse to relaxing fiscal goals, it is working on steps to provide help to select sectors, especially ones that can create more jobs. Some measures for small-scale industry, textiles and the export sector could be announced soon, officials said.
The government is also pushing central public sector undertakings to frontload their capex. The finance ministry is not keen to relax the fiscal consolidation target of 3.2% of GDP for FY18 at this juncture.
