Economic Outlook Survey September 2015

Transcription

1 FICCI s Economic Outlook Survey: GDP growth at 7.6% for Results of FICCI s latest Economic Outlook Survey indicate moderation in GDP growth estimates. Based on the responses received, the median GDP growth forecast for the fiscal year has been put at 7.6%. This is marginally lower than the GDP growth estimate of 7.8% reported in the previous round. FICCI s Economic Outlook Survey is conducted among eminent economists belonging to the industry, banking and financial services sector. According to the latest forecasts, growth estimates for agriculture and allied activities and service sector have noted moderation, vis-a-vis the estimates reported in the previous round. However, no change was noted in the growth estimate for the industrial sector in the present round. Estimates for (Median forecasts) Growth (in %) Latest Round Previous Round GDP@ market prices GVA@ basic prices Agriculture & Allied activities Industry Services As per the latest data from the Indian Meteorological Department, there has been a deviation of about 12% (June 1 to August 27, 2015) in the monsoon rain from the long period average. This might dampen agriculture sector growth prospects in the current year to some extent. Also, the latest data on India s water reservoirs indicates lower reserves when compared to last year. As for services, the median growth forecast for the sector has been put at 9.8% in , with a minimum and maximum range of 9.2% and 11.6% respectively. The moderation in median forecast for the services sector, to some extent, can be attributed to a slowdown in service exports. Service exports have witnessed contraction for four consecutive months (between April and July 2015). Nonetheless, growth estimate for the sector can see some improvement in the months ahead. The anticipated pickup in industrial growth is likely to support the trade, hotel, transport and communication segment. In addition, recent reforms announced by the Government to transform public sector banks and the Reserve Bank s in principle approval for payment banks is expected to give some thrust to the financing and business services sector. Further, as for the quarterly estimates, the median GDP growth forecasts for Q1 and Q have been indicated at 7.2% and 7.3% respectively in the current survey. The participating economists were asked to give their prognosis about the global situation and the expected impact on India. A majority of the economists participating in the survey felt that prospects for advanced economies remain muted and with China slowing down, the emerging market group would register further moderation. The sudden devaluation of yuan by China has taken the world by surprise and has caused volatility in the financial markets. This reflects a more entrenched weakness in China than what was being anticipated. The economists felt that the direction of the global recovery course would become clearer by end of this year. About the expected impact on India s economy, the participating economists were of the view that some spill over from the global developments will be inevitable. Exports have been witnessing a contraction and this remains a major worry. Foreign institutional investors have been in the selling mode owing to the recent global developments. India would have to remain cautious given the volatility in foreign exchange markets, the probable stance of US Federal Reserve on interest rates and the continued monetary easing in other parts of the world.

2 However, India is expected to steadily move towards further recovery, but much would be contingent on Government continuing the reform process and the progress achieved on implementation. The economists were of the view that resolving domestic issues and undertaking pending reforms would be critical. Also, it was suggested that the emerging markets should explore and leverage greater opportunities through trade and investments. The median growth forecast for IIP has been put at 5.0% for the year , with a minimum and maximum range of 3.2% and 6.0% respectively. There has been no change in the median forecast for IIP visà-vis the previous survey. Also, the outlook of the participating economists on inflation remained moderate. The median forecast for Wholesale Price Index based inflation rate for has been put at 0.7%, with a minimum and maximum range of (-) 1.0% and 1.3% respectively. The Consumer Price Index has a median forecast of % for , with a minimum and maximum range of 4.8% and 6.0% respectively. The manufacturing activity has indicated some uptick but the pace of revival remains gradual and volatile. The Reserve Bank of India has cut the repo rate by 75 bps between January and June this year. However, the corresponding decline in the lending rates by Banks has been to the tune of bps. Given that, we asked the views of economists on the kind of environment the banks would require for bringing down the lending rates. According to the economists participating in the survey, an improved transmission will be contingent upon a pickup in stalled projects and a sustained recovery in the economy. The transmission by banks has been gradual given the underlying environment of uncertainty. Besides, the banks have been under significant stress owing to rising non-performing assets. Also, the economists participating in the survey indicated that the cost of raising funds for banks has been high and the banks have been under pressure to maintain their net interest margins. Amidst the above scenario, the recently announced seven point strategy by the government to transform Public Sector Banks was much required. De-stressing the Public Sector Banks remains a key focus area both for the Government and the Reserve Bank of India. Lastly, the participating economists were also asked to share their opinion on the ways to enhance investment prospects in States. States are the building block of the nation and their role in achieving India s growth aspirations is indispensable. The respondents were of the opinion that the first and foremost thing for enhancing prospects of States is to resolve policy log jams on certain imperative issues such as land acquisition, goods and services tax etc. States should accelerate the process of infrastructure development as the sector has huge forward and backward linkages. Public Private Partnerships should be encouraged and the States should build a conducive environment for facilitating the same. Given the huge diversity, each of the States has its own comparative advantage; the same should be identified as the States Unique Selling Point (USP) and should be made a part of its core development strategy. Further, sectors with high growth and high employment potential like medium and small industries, tourism need to be focused on.

3 Survey Profile The present round of FICCI s Economic Outlook Survey was conducted in the month of July/August 2015 and drew responses from leading economists representing industry, banking and financial services sector. The economists were asked to provide the forecast for key macro-economic variables for the year as well as for Q1 (April-June) and Q2 (July-September). In addition, economists were asked to share their prognosis about the global economy given the recent developments and their likely impact on India. The economists were also asked to share views on the kind of environment the Banks would require for bringing down the lending rates and the key areas that need to be focused on at the State level in order to enhance the investment prospects. Survey Results: Part A Projections Key Economic Parameters National Accounts GDP growth at prices Annual ( ) Q Q Growth (in %) Median Min Max Median Min Max Median Min Max GDP@ market prices GVA@ basic prices Agriculture & Allied activities Industry Services Based on the responses received for the latest round of FICCI s Economic Outlook Survey, the annual median GDP growth for is estimated at 7.6%. This indicates a downward revision from 7.8% growth projected in the previous round. The median growth forecast for agriculture and allied activities has been put at 2.1% for , with a minimum and maximum growth estimate of 0.8% and 3.5% respectively. Industry and services sector are expected to grow by 6.5% and 9.8% respectively in the current fiscal year. The quarterly median forecasts indicate a GDP growth of 7.2% in Q and 7.3% in Q Gross Fixed Capital Formation as % of GDP MP (in %) The ratio of Gross Fixed Capital Formation to GDP for has been projected at 28.5%. The actual number in the fiscal year was reported at 29.9%. Q

4 Index of Industrial Production (IIP) IIP: Growth (in %) 5.0 The median growth forecast for IIP was put at 5.0% for by the participating economists, with a minimum and maximum range of 3.2% and 6.0% respectively. 4.5 Q The latest IIP data reported an uptick in growth in the month of June The actual IIP growth in Q1 has been reported at 3.2%. This is marginally lower than the estimate of 3.4% according to our survey results. Wholesale Price Index (WPI) & Consumer Price Index (CPI) Wholesale Price Index (in %) 0.7 Q Consumer Price Index (in %) Q1 Wholesale Price Index based inflation rate is estimated at 0.7% in , with a minimum and maximum range of (-) 1.0% and 1.3% respectively. Consumer Price Index has a median forecast of % for , with a minimum and maximum range of 4.8% and 6.0% respectively. In the previous survey round, the CPI forecast for this fiscal year was put at 5.5%. Fiscal Deficit Fiscal Deficit as % of GDP The median forecast for fiscal deficit to GDP ratio was put at 3.9% for the fiscal year The participating economists believe that the Government will be able to meet the set target of 3.9% deficit ratio as announced in the Union Budget Q1

5 Money and Banking Money Supply (M3): Growth (in %) Bank Credit: Growth in % Q Q End of Q End of Repo Rate 7.25% 7.0% External Sector Q Export USD billion Import USD billion Export growth has been on a downtrend for eight consecutive months ending July The global demand conditions remain subdued and the recent devaluation by China has raised further concerns. Some improvement in exports can be expected in second part of the current fiscal year. Based on the responses of the participating economists, the median growth forecast for exports has been put at 2.4% for fiscal year Current Account Deficit as % of GDP USD/INR Exchange Rate Q1 1.1 Q

6 Survey Results: Part B Views of the Economists PROGNOSIS ABOUT THE GLOBAL SITUATION AND LIKELY IMPACT ON INDIA Global economic recovery has remained fragile so far this year with signs of uncertainty persisting and hampering a sustained turn around. At the start of the year, the United States economy witnessed a discernible moderation owing to harsh weather conditions. This was reflected in the contraction in GDP growth in the first quarter numbers. Nonetheless, prospects thereafter have noted an improvement with a strong rebound noted in consumer spending. On the European side, subdued demand and risk of deflation continue to pose as challenges. Further, Greece s default on its debt payments in June this year posed a serious threat to global economic stability. The economists participating in the survey felt that prospects of advanced economies remain muted and with China slowing down, the emerging market group would register further moderation. The sudden devaluation of Yuan by China has taken the world by surprise and has caused volatility in the financial markets. This reflects a more entrenched weakness in China than what was being anticipated. The economists felt that the direction of the global recovery course would become a little more certain by end of this year. The United States is expected to take a stance with regard to its monetary policy later in the year and the uncertainty surrounding Greece will also be cleared. Euro zone has recently allowed for an 86 billion euro bailout for Greece but this requires affirmation from all Euro zone members. Also, Greece would be undertaking bailout reforms which include tax, pension and administrative reforms. About the expected impact on India s economy, the participating economists were of the view that the country is likely to remain on the recovery course and much would be contingent on Government continuing the reform process and the progress achieved on implementation. However, some spill over from the global developments will be inevitable. The exports have been witnessing a contraction and this can have a moderating impact on the industrial sector as well. Thus, keeping the domestic demand intact will be important. Also, foreign institutional investors have been in the selling mode owing to the recent global developments. India would have to remain cautious given the volatility in foreign exchange markets, the probable stance of US Federal Reserve on interest rates and continued monetary easing in other parts of the world. The economists were of the view that resolving domestic issues and undertaking pending reforms would be critical. It was also suggested that the emerging markets should explore and leverage greater opportunities through trade and investments. KIND OF ENVIRONMENT BANKS REQUIRE IN ORDER TO BRING DOWN THE LENDING RATES The Reserve Bank of India has cut the repo rate by 75 bps between January and June this year. The corresponding decline in the lending rates by Banks has been to the tune of bps. The transmission by Banks has been gradual given the underlying environment of uncertainty. According to the economists participating in the survey, an improved transmission will be contingent upon a pickup in stalled projects and a sustained recovery in the economy. Besides, the banks have been under significant stress owing to the rising non-performing assets. The economists participating in the survey also indicated that the cost of raising funds for banks has been high and that the banks have been under pressure to maintain their net interest margin.

7 Amidst the above scenario, the recently announced seven point strategy by the government to transform Public Sector Banks was much required. De-stressing the Public Sector Banks remains a key focus area both for the Government and the Reserve Bank of India. Also, the new accountability framework of Key Performance Indicators and the process of Governance reforms initiated will be instrumental in turning around the present situation. Evident signs of moderation emanating from China have caused jitters in the global economy. Under this situation reviving the momentum in domestic manufacturing activity, though challenging, will remain critical. This will also enable creating an appetite for new loans. ENHANCING INVESTMENT PROSPECTS IN STATES States are the building block of the nation and their role in achieving India s growth aspirations is indispensable. The participating economists were of the opinion that the first and foremost thing for enhancing investment prospects of States is to resolve policy log jams on certain imperative issues such as land acquisition, goods and services tax etc. States should accelerate the process of infrastructure development as the sector has huge forward and backward linkages. Public Private Partnerships should be encouraged and the States should build a conducive environment for facilitating the same. Given the huge diversity, each of the States has its own comparative advantage; the same should be identified as the States Unique Selling Point (USP) which should be made a part of its core development strategy. Further, sectors with high growth and high employment potential like medium and small industries, tourism should also be focused on. The participants taking part in the survey were of the view that education and health are the basic foundations and that all States should strive to have a skilled and healthy workforce.

8 Appendix Outlook Outlook Q Outlook Q Key Macroeconomic variables Mean Median Min Max Mean Median Min Max Mean Median Min Max GDP growth rate at market prices (%) GVA growth rate at basic prices(%) Agriculture & Allied Industry Services Gross Domestic Savings (% of GDP at market prices) Gross Fixed Capital Formation (% of GDP at market prices) Fiscal Deficit (as % to GDP) Centre Growth in IIP (%) WPI Inflation rate (%) CPI combined new inflation rate (%) Money supply growth M3 (%) (end period)

9 Bank credit growth (%) Repo Rate (end period) Merchandise Export Value in USD billion Growth (%) Merchandise Import Value in USD billion Growth (%) Trade Deficit (% to GDP) CAD as % of GDP at current price US$ / INR exchange rate (end period)