Page 29 - Forbes - India (January 2020)

State of the economy

Mixed Signals
● Reviving growth dependent on rural
spending and increased flow of credit
● Corporate India shows no signs of
investing as capacity utilisation numbers
have moved down in the last four quarters
● Government expenditure contributes
11 percent to growth in 2017-18, a
multi-year high
● Food inflation could end the rate cut
cycle and leave fiscal policy as the only
growth lever

standards and abundant liquidity,”
according to a note by brokerage
Motilal Oswal. It also points out that a
broad-based revival in credit growth
may take time as monetary policy has at 212,000 units, the retail sales numbers for december pleasantly surprised maruti suzuki
played its role. For now, it is hard
to estimate how these can add to decisions under the Insolvency and pick up. In a recent paper, former
growth, but the net result of increased Bankruptcy Code. One area that chief economic advisor Arvind
rural demand and more credit flow could present a risk is loans given to Subramanian said this could lead to a
means growth should stop sliding. the real estate sector, which stand second wave of bad loans for banks.
Outside of rural spending and at `500,000 crore, according to data Besides, over the last five years,
credit growth, there is also the fact compiled by consultancy CRE Matrix. merchandise exports have been 29
that the base effect will kick in from Slow sales loans to this sector could stagnant at an average of $310 billion
the second half of fiscal 2021, which go bad if nominal growth doesn’t a year. This has been partly due to
means growth numbers could start petroleum products and gems and
looking better despite relatively jewellery, which contribute to about
slow growth. “The macro data still a third of exports. As global oil prices
points to continued weakness and so fell, the value of India’s petroleum
we do not expect a strong revival,” exports too slid. Since then the
says Venugopal Garre, director number (for petroleum products and
at Bernstein, a brokerage. Most gems and jewellery) has fallen to 26
brokerages have forecast growth percent. There is now evidence that
at 5.1-5.5 percent this fiscal with a the government wants to provide
likely revision once third quarter business-specific incentives to get
numbers are out. In the last four exports going. “Since value addition
quarters, capacity utilisation numbers in textiles is low, we have argued that
have trended downwards to 73.6 electricity and logistics costs should
percent, leaving little incentive for be lowered and tax refunds need to
companies to start investing again. be made quickly to let us compete
Gross fixed capital formation has “i can’t comment with Bangladesh and Vietnam,” says
steadily fallen to 28.3 percent in on future monthS, Mohit Jain, vice chairman of Indo
2018 from 34.5 percent in 2007. Count, a textile exporter. He says the
Corporate India has used this But decemBer, at government has heard them out. Last aboVe: anushree FadnaVis / reuters; bhargaVa: amit Verma
period to reduce debt, lower promoter leaSt, indicated year saw auto components, mobiles,
pledges on shares and get rid of an imProvement textiles and specialty chemicals
businesses that are not part of their register strong numbers, according
core. There has also been a resolution in demand.” to the Directorate General of Foreign
of the Essar bankruptcy case defining Trade. If this continues, exports could
the rights of operational creditors. rC bhargava, chairman, Maruti Suzuki turn out to be a small-yet-significant
This should quicken the pace of lever of incremental growth.

january 31, 2020 • forbes india