SLOW GDP GROWTH TO DELAY RECOVERY TO DEC: INDIA INC

India’s slow gross domestic product (GDP) growth may delay a much-anticipated recovery in the economy, companies across

manufacturing and consumer durables told Business Standard. The country’s GDP growth for the June quarter came in at 5.7 per cent, lower than the 6.1 per cent reported in the January-March 2017 period. Manufacturing took a sharp hit, growing 1.2 per cent only in the June quarter versus 5.3 per cent in the January-March period. The June quarter GDP growth was the lowest in three years — a worrying sign, industry captains and chief executives officers (CEOs) say. Earlier, most of them expected a recovery in consumer sentiment and trade during this year’s festive season — the first one after the scrapping of ~1,000 and ~500 currency notes in November last year, and the implementation of the goods and services tax (GST) in July. The opinion has changed now. With trade continuing to grapple with the effects of the GST and with consumer sentiment taking time to improve, they are now saying recovery would not come in before December or January 2018. VIVEAT SUSAN PINTO, AMRITHA PILLAY & AJAY MODI write

India’s slow gross domestic product (GDP) growth may delay a much-anticipated recovery in the economy, companies across manufacturing and consumer sectors tell Business Standard.

The country’s GDP growth for the June quarter (Q1) came in at 5.7 per cent, lower than the 6.1 per cent reported in the January-March 2017 period. Manufacturing took a sharp hit, growing 1.2 per cent only in the Q1 versus 5.3 per cent in the January-March period. The June quarter GDP growth was the lowest in three years — a worrying sign, industry captains and chief executives officers (CEOs) say.

Earlier most expected a recovery in consumer sentiment and trade during this year’s festival season — the first one after the scrapping of ~1,000 and ~500 currency notes in November and implementation of the goods and services tax (GST) in July. The opinion has changed now. With trade continuing to grapple with the effects of the GST and with consumer sentiment taking time to improve, they are now saying recovery would not come in before December or January.

“The trend over the last few quarters suggests there has been a consistent fall in GDP growth. While some of this has been a result of the demonetisation and GST, the falling trend is not good. I am hoping GDP does not fall further. My sense is, it won’t, though the recovery — especially in the rural sector and wholesale as a channel — will take time,” says Marico Chairman Harsh Mariwala.

Dabur India CEO Sunil Duggal says, “The economy will recover from the low of 5.7 per cent reported in the Q1, but it will be lower than the eight per cent many were hoping it would touch. And it (recovery) will come in the second half of the third quarter, with the festive season likely to be subdued this year.”

CavinKare Chairman and Managing Director C K Ranganathan says there would be a lag effect. “We are not going to see the blistering pace of growth (in GDP) that we saw a few quarters ago. The recovery will take time and will be slow and steady,” Ranganathan says.

According to experts, one reason for the subdued festival season this year could be because people brought forward purchases when dealers and retailers offered steep discounts to clear inventory in the run-up to the GST.

Festive spends are also likely to be hit owing to lower disposable incomes on account of lower increments and also due to flash floods disrupting life in many parts of India. As Ranganathan says, there is stress both in urban and rural areas.

While durable, lifestyle and fashion retailers benefitted from advanced purchasing by consumers in June, in automobiles — barring luxury carmakers who offered high discounts to woo customers — most players opted not to offer discounts. Maruti Suzuki Chairman R C Bhargava says it was partly linked to dealers wanting to reduce risks in the run-up to the GST. “Dealers wanted to take minimum risks related to input tax credit on old stock in the June quarter. As far as the auto industry is concerned, it will exit FY18 on a positive note,” Bhargava says.

On the manufacturing side, capital goods firms expect a full recovery by the third quarter of FY18. “There should be a partial recovery in August-September and a full recovery by the December quarter. One cannot discount the full year (2017-18) based on one quarter (June),” says Thermax Managing Director M S Unnikrishnan. KEC International CEO and MD Vimal Kejriwal expects a full recovery in the March quarter. “There is a lot of retendering activity happening due to change in the taxation rules,” Kejriwal says. His assessment is based on the poor performance of capital goods firms over the past few quarters on the ordering front due to poor private investment and expenditure.

Demonetisation and GST, along with slower on-ground execution of projects, have had a further impact on these companies. “The second quarter is the monsoon quarter and, therefore, demand remains subdued. Our experience shows that the first half of a financial year accounts for 40 per cent of the demand, while the second half brings 60 per cent. Therefore, we expect manufacturing activity to pick up in the third quarter,” says Jindal Steel & Power MD and Group CEO Ravi Uppal.

I AM HOPING GDP DOES NOT FALL FURTHER. MY SENSE IS IT WON’T, THOUGH THE RECOVERY, ESPECIALLY IN THE RURAL SECTOR, WILL TAKE TIME” HARSH MARIWALA Marico Chairman IT (RECOVERY OF ECONOMY) WILL COME IN THE SECOND HALF OF THE THIRD QUARTER, WITH THE FESTIVE SEASON LIKELY TO BE SUBDUED THIS YEAR” SUNIL DUGGAL Dabur India CEO