NCAER-IIC Mid-Year Review of the Economy 2015-16 November 14, 2015 New Delhi
Outline of the Presentation Macro-economic performance to date Dis-aggregated view / sectoral performance Near Term Challenges Forecast & Outlook
NCAER-IIC MYR Then (2014) & Now (2015) Flashback : In Nov 2014, we d described H1, 2014-15, as: Period when India got its mojo back! We said the good thing about H 2 2014-15 was: It gave us a rare (undeserved?) window of opportunity Fast-Forward : So how do we describe H1 2015-16? A period when India almost lost its way! Good thing about H2 2015-16 : We ve got a (undeserved?) second chance
Will it be promise belied Second-time lucky? From being a member of the Fragile Five in 13 To being the only BRIC standing in Mid 2014 To losing our footing by March 2015 To once again looking good; if only relatively! India has come full circle in 1 year
But it s not the 1 st time! Indian economy has flattered to deceive in the past as well From being described the World s Biggest Under-achiever (Economist 1999) To being the eye of the Brics in 2003 To being part of Fragile Five by 2010 To now breaking loose from that grouping How will the world see us Nov 2016?
The billion dollar question!! Crouching tiger? A Nearly-power? Lumbering elephant? Tortoise finally picking up pace?
Good news is it s no longer if & when, but how!
In a nutshell. It is the best of times, it is the worst of times. Charles Dickens : Tale of Two Cities
Growth Forecasts: Old & New 2012-13 2013-14 2014-15 2004-05 base 2011-12 base 2004-05 base 2011-12 base 2004-05* base 2011-12 base Agri/forestry/fishing 1.4 1.2 4.7 3.7 3.5 0.2 Manufacturing 1.1 6.2-0.7 5.3 1.8 7.1 Trade/hotels/restaura nts 4.5 9.6 3 11.1 3.3 10.7 Fin/real estate/buss. services 10.9 8.8 12.9 7.9 10 11.5 GDP 4.5 4.9 4.7 6.6 5.5 7.3
Growth Forecasts Ministry of Finance RBI ADB IMF World Bank Real GDP market prices growth (%) >7.5 (Oct) 7.4* (Sept) 7.4 (Sept) 7.3 (Oct) 7.5 (Oct) Notes: *GVA at basic prices (2011-12) Sources: Asian Development Bank, Reserve Bank of India, World Bank, Finance Ministry, GOI, and International Monetary Fund
Projections for the World (%) Country/ Region 2013 2014 2015 2016 US 2.2 2.4 2.6 ( ) 2.8 ( ) China 7.8 7.4 6.8 ( ) 6.3 ( ) Euro Area -0.4 0.8 1.5 ( ) 1.6 ( ) Japan 1.6-0.1 0.6 ( ) 1.0 ( ) India 6.9 7.3 7.3 ( ) 7.5 ( ) Emerging Market and Developing Economies Advanced Economies 5.0 4.6 4.0 ( ) 4.5 ( ) 1.4 1.8 2.0 ( ) 2.2 ( ) World 3.4 3.4 3.1 ( ) 3.6 ( ) Note: The arrows indicate changes in direction from July 2015 forecasts. Source: IMF World Economic Outlook (WEO) Update, Oct 2015
Is the improvement real or illusory? 9 8 7 6 5 4 3 2 1 0 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 GVA GDP
On the price front, we re in safe waters! 8 6 4 2 0-2 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15-4 -6 Prices CPI Prices CPI food Prices WPI
But investment is still in the doldrums 30.5 30 29.5 29 28.5 28 27.5 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1FY16 Gross Fixed Capital Formation( % of GDP) Current prices Gross Fixed Capital Formation( % of GDP) Constant prices
6-Apr-15 13-Apr-15 20-Apr-15 27-Apr-15 4-May-15 11-May-15 18-May-15 25-May-15 1-Jun-15 8-Jun-15 15-Jun-15 22-Jun-15 29-Jun-15 6-Jul-15 13-Jul-15 20-Jul-15 27-Jul-15 3-Aug-15 10-Aug-15 17-Aug-15 24-Aug-15 31-Aug-15 7-Sep-15 14-Sep-15 21-Sep-15 28-Sep-15 Govt gains more than corporates 8 10 Yr G Secs Yield 7.95 7.9 7.85 7.8 7.75 7.7 7.65 7.6 7.55 7.5
Stock Markets: No longer irrationally exuberant! 30000 BSE SENSEX 29000 28000 27000 26000 25000 24000
FIIs play true to form, easy come, easy go! 300000 250000 200000 150000 100000 50000 0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16* -50000 Equity Debt Total
Like monsoon, IPO position is sub-par but is improving 40000 35000 30000 25000 20000 15000 10000 5000 0 2010 2011 2012 2013 2014 2015(till 16/10) No. of IPOs Amount
Real interest rates among the highest!(oct 15) Policy rate CPI Real rate Brazil 14.25 9.6 4.65 Russia 11 15.8-4.8 India 6.75 3.66 3.09 S. Africa 6.00 5.00 1 Indonesia 7.5 7.2 0.3 Turkey 7.5 7.1 0.4 Mexico 3 2.6 0.4 Source: cbrates.com, Economist
Is the whole more or less than the sum of its parts? The dis-aggregated view
Agriculture: News is grim and yet not so grim or without hope!
Industry Have hopes been raised, only to disappoint? Plus ça change, plus c'est la même chose
Mixed signals from the core 10 8 6 4 2 0-2 Coal Crude oil Natural gas Refinery products Fertiliser Steel Cement Electricity Overall Source: Office of EA, DIPP -4-6 2014-15 H1 FY15 H1 FY16
Tentative recovery in sight 25.0 20.0 15.0 10.0 5.0 0.0-5.0 Q1FY15 Q2FY15 Q3FY15 Q4FY15 FY15 Q1FY16
Services : Mixed signals : What is clear is services can no longer be the sole engine of growth!
Real Growth rate of Services Sector GVA basic prices (%, Y-o-Y) 16.0 14.0 13-14 14-15 AE 14-15 PE 12.0 10.0 8.0 6.0 4.0 GVA-BP Services incl Construction Services excl Construction Community, social & Financing, insurance, real Trade, hotels, transport,commun ication etc
Money and Capital Markets.
Bank credit continues to lag 9000000 8500000 8000000 7500000 7000000 6500000 6000000 5500000 5000000 Bank Deposits Non-Food Credit
External Sector: Prima facie re-assuring but anxieties remain
How real is the comfort? US $ bn 2013-14 Q1 2013-14 Q1 2014-15 Q1 2015-16 Trade balance -147.6-50.5-34.6-34.2 Net Service 73 16.9 17.1 17.4 Net Income -23-4.8-6.7-5.6 Current account -32.4-21.8-7.8-6.2 figs in brackets % of GDP Source: RBI (-4.9) (-1.7) (-1.2)
Re less volatile than other EME currencies 68.0 USD/INR 67.0 66.0 65.0 64.0 63.0 62.0 61.0 60.0 59.0
Public Finance: So far so good but OROP & 7 th Pay Commission will rock the boat!
% of BE; Source: CGA As good as it gets H1 2015-16 H1 2014-15 Revenue receipts 45.0 35.1 Tax revenue (net) 40.2 33.1 Non-tax revenue 64.8 44.6 Total receipts 43.5 33.5 Non-plan exp 50.0 50.5 Plan exp 54.6 42.8 Total exp 51.2 48.0 Fiscal deficit 68.1 82.6 Revenue deficit 68.2 91.2 Primary deficit 181.8 243
Prices: Welcome relief; but have we got blind-sided in the process? Has growth suffered?
Death of inflation? Or, too early to declare victory? 8 6 4 2 0-2 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15-4 -6 Prices CPI Prices CPI food Prices WPI
Near-term Challenges : Internal Revive investment Improve productivity ; arrest rise in ICOR Reverse decline in manufacturing sector Improve governance Improve infrastructure: physical & social Structural reform - focus on land and labour markets Legal reform
Near term Challenges : External End of Federal Reserve s QE and reversal of US interest rate cycle Threat of recession in Europe Slowdown in China s growth rate Stagnation in world trade Exclusion from trade pacts like TPP In the face of all this.
Question is: Can we make it?
Yes, we can! Why? UP AP Gujarat M a h a G O I Cos states & centre are working as equal partners
To conclude.. It is the age of wisdom, it is the age of foolishness, it is the epoch of belief, it is the epoch of incredulity, it is the season of Light, it is the season of Darkness, it is the spring of hope, it is the winter of despair, we have everything before us, we have nothing before us.. Charles Dickens: Tale of Two Cities
Forecast
Quarterly Model Assumptions Prices ARIMA Model deflation (-3.6% yoy) Rainfall As per IMD reports, deficit rainfall, -6.2 %yoy BSE 5% y-o-y increase in 2015 BCC 10.1% y-o-y increase in 2015-16 Total Expenditure of the Central Government 10% y-o-y increase in 2015-16
Quarterly Forecast for 2015-16 Gross Value Added at Basic Prices (constant 2011-12 prices) for 2015-16, %y-o-y July-15 October 2015 2015-16:Q1 6.0 7.1* 2015-16:Q2 7.3 7.2 2015-16:Q3 7.6 6.4 2015-16:Q4 7.9 7.4 2015-16 7.2 7.0 Note: * Actual value Source: NCAER
Assumptions of the Annual Model Rainfall : -6.7% increase in 2015-16 BSE 5% in 2015-16 World GDP Growth - 3.1% in 2015 International Crude Oil Prices -46.4% in 2015-16 Non-fuel Commodity Prices - -16.9% in 2015-16 FDI Net Inflows 10% in 2015-16 Net Invisibles 5% in 2015-16 FII 10% in 2015-16 WPI Energy -12.8% in 2015-16 LIBOR 0.3% Exchange Rate Rs 65.25/$ in 2015-16 Central Government Finances Disinvestment Rs 69,500 crore in 2015-16
NCAER Forecast for 2015-16 GDP Market Prices (2011-12 Prices), Growth Rate Estimates for 2015 16 Item April 2015 July 2015 October 2015 GDP Market Prices 7.8 7.5 7.4 (2011 12 prices )% yoy) Exports ($ value) (%yoy) 5.8 19.3 17.5 Imports ($ value) (%yoy) 6.2 20.5 14.4 Inflation (WPI) (% yoy) 0.22 1.5 2.5 Current account balance as percentage of GDP Fiscal Deficit (Centre) as percentage of GDP -1.1 0.9 1.1 4.1 4.1 4.1
MYR Team Overview Forecast: Agriculture: Industry: Services: Money and Credit: Prices: External Sector: Public Finance: Mythili Bhusnurmath Bornali Bhandari Anil K. Sharma Poonam Munjal Devender Pratap Pallavi Choudhuri Sheshadri Banerjee Rajesh Chadha & Ishita Gambhir Mythili Bhusnurmath Research/ Data Support: Ajaya Sahu, Praveen Sachdeva Organisational Support: Sudesh Bala
Thank You
Recent Trends in Selected Economic Indicators % Change YOY 2014-15 2015-16 2015-16 I. Growth Environment: IIP Q4 Q1 Jul Aug Sep Manufacturing 3.7 3.8 Mining and Quarrying 0.3 0.4 Electricity 3.7 2.3 General 3.3 3.3 4.6 6.9 3.8 0.9 3.5 5.6 6.4 4.1
Recent Trends in Selected Economic Indicators % Change YOY 2014-15 2015-16 2015-16 Q4 Q1 Jul Aug Sep II. Price environment WPI(2004-05) Primary articles 0.7-0.4-4.0-3.7-2.1 Fuel, power etc -12.7-10.4-11.6-16.5-17.7 Manufacturing 0.4-0.6-1.5-1.9-1.7 Rice or paddy 2.6-1.0-2.9-3.5-3.6 Wheat -1.7 2.0 2.0 2.0 3.3 Edible oils -0.8 0.8 1.4 1.4 3.2 All commodities -1.8-2.3-4.0-4.9-4.5 CPI Industrial workers (2001=100) 6.6 5.9 4.4 4.3 5.1 Agricultural labour (1986-87=100) 5.8 4.4 2.9 3.0 3.5 Combined (2012=100) 5.6 5.7 4.3 4.4 4.9
Recent Trends in Selected Economic Indicators % Change YOY 2014-15 2015-16 2015-16 III. Monetary/ Capital market variables Q4 Q1 Jul Aug Sep Sensex 35.1 14.7 8.6-1.3-1.8 M3 11.1 10.7 11.2 11.1 10.7 RM 5.7 9.6 10.1 8.8 11.8 Bank credit to commercial sector 9.9 9.2 8.9 8.9 9.1 LIBOR (3 months, %)* 0.3 0.3 0.3 0.3 0.3
Recent Trends in Selected Economic Indicators % Change YOY 2014-15 2015-16 2015-16 IV. External account Q4 Q1 Jul Aug Sep Exports (US$ merchandise) -16.0-16.8-10.3-21.1-24.4 Imports (US$ merchandise) -13.4-12.6-10.3-10.7-25.1 Exchange rate Rs/US$ (+ depreciation/- appreciation 0.7 6.0 5.1 7.0 8.8 Brent $/barrel* 54.0 62.1 55.9 Forex Currency Assets (US$) 15.3 14.3 12.3 47.0 47.2 11.8 13.9
Puzzles 1. Does agriculture matter? 2. Industrial growth or not? 3. Investment 4. Inflation and Inflation Expectations
Does agriculture matter?
Does agriculture matter? Distribution across Principal Industries of Households %age share Households Consumption Agriculture and allied 39.9 32.2 Industry 23.4 22.9 Services 29.4 39.0 Non economic activities 7.3 5.9 All 100.0 100.0 Source: NSSO 2011-12
Source: MoSPI Industrial Growth or Not?
Source: MoSPI Industrial Growth or Not? contd.
Source: MoSPI Investment: Capital Goods
Investment: NCAER BES Source: NCAER Business Expectations Survey
Inflation and Inflation Expectations are divergent Source: RBI, Labour Bureau and Office of Economic Advisor
Mixed Outlook Source: RBI, MoSPI and Office of Economic Advisor