August data points to early signs of recovery in economic growth
NEWDELHI: Several sectoral indicators for the month of August point to early signs of a revival in economic growth, which slowed to 5.7% in the June quarter, according to analysts.
The improvements suggest that the aftershocks of demonetisation and the rollout of the goods and services tax (GST) are wearing off.
Sales of two-wheelers, commercial vehicles and tractors, power generation, steel production, airport traffic and fundraising from equity markets by businesses reported faster annual growth in August thanin the previous month, brokerage Jefferies Group LLC said in a note to investors on Monday.
The uptick in inflation and weak credit growth in August, however, had a sobering impact on sentiments.
“Steady and robust” growth was visible for a while in passenger vehicles and tractors, while early signs of growth recovery are visible in August in twowheeler sales and in rail freight, UBS Securities India Pvt. Ltd, another brokerage, said in a note to clients on the same day.
One of the bright spots in the economy is a 10.29% jump in exports in August to $23.8 billion from $21.5 billion the same time a year ago.
The UBS report, however, cautioned that while manufacturing activities as reported by the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) resumed expansion in August, services output remained subdued.
Manufacturing PMI rose to 51.2 in August, indicating an expansion from 47.9 in July.
A reading above 50 indicates expansion, and below that a contraction. Nikkei India Services PMI at 47.5 in August suggested services output declined for the second consecutive month although the decline was less severe than in July, when the index was at 45.9, IHS Markit Ltd said on September 5.
The Modi administration, which was caught on the wrong foot on account of the unexpected deceleration of the economy in the fiscal first quarter from 6.1% in the preceding three months, is currently exploring policy measures and administrative reforms that could spur investments.
Policymakers hope that the “frontloading” of public spending in the early months of the financial year is helping funds to be utilised efficiently and will lead to a pick-up in growth in the coming months.
However, any decision to deviate from its fiscal consolidation plan will only be taken as part of the budget exercise and with the sanction of Parliament, two finance ministry officials said on condition of anonymity.
Economists said that the effects of demonetisation and GST roll out may be diminishing but the overall weakness in the economy is still a cause for concern.
“I would not necessarily call it a revival. The exceptional slowdown in the growth rate (in the June quarter) on account of supply disruptions arising from GST roll out is reversing. Also, coal offtake which suffered during monsoon has picked up in August. We are back on track, but below the anticipated levels,” said HDFC Bank chief economist Abheek Barua.
“The key positive in August was the further acceleration in commercial vehicle sales and uptick in exports and imports. The key negative was the uptick in inflation, and weak credit growth. Freight data remained mixed with ports remaining weak and railway freight improving,” said the note from Jefferies Group.