By Ruma Dubey
Take a look at these two conflicting news.
First. The Nikkei India Composite Purchasing Managers’ Index (PMI) for June 2018 came in at 53.3, its highest level since October 2016. This index shows us the private sector activity in the economy, taking into consideration both manufacturing and services. A reading above 50 indicates expansion from the preceding month, while one below 50 denotes contraction. The PMI states that new orders are coming and staffing has improved, with demand going up for their products and services.
Second news is the exact opposite. Center for Monitoring the Indian Economy (CMIE) put out a report stating that new project announcements in India during the quarter ended June actually fell 22%. There was no pick-up on investment activity with decline led mainly by fall in new public-private sector projects.
The good news here – CMIE stated that Indian companies announced fresh projects worth Rs 2.1 lakh crore in the three months ended June.
But wait, before you start saying that both news are the same – read between the lines. Though we saw a 24% rise in private sector investment, this was mainly on account of a single order - Rs 1.3-lakh-crore purchase order for Boeing aircraft – this was 75% of the total order. So if we remove this one order and look at the new projects announced by private sector in Q1FY19, there was actually a 72% drop in new project announcements. CMIE stated that fresh investments in sectors such as manufacturing, metals and transport equipment declined during the period.
And take a look at this number – number of projects completed in FY18 was lowest in three years; blame it on GST rollout and trailing impact of demonetization. Sectors which showed maximum delays were electricity, real estate, construction and transport service.
There was improvement in the state of stalled projects – Q1FY19 was down at 10.8% v/s 12.2% (QoQ). The main issues remained the same - lack of environmental clearances, low fuel availability, insufficient funds and land acquisition. 83% of the projects stalled were from the private sector and 17% from PSUs.
Somehow, the stark difference in the data of what the PMI indicates and what CMIE, which does extensive research, makes one wonder about the data that we are getting. Whom do we believe? IIP also does not indicate any of this duress on the ground.
But the fact is that now till elections are over, there will no real stimuli from the Govt and RBI. This means that the private sector will continue to hold on. More importantly, the truth is that demand is very slack and that is the core of everything. WE might say that optimism has come in after Modi was sworn in but what we see actually is very different.
Yes, the hike in MSP is one good thing and maybe this will translate into a perk up in demand – the benefits of MSP will percolate, if and only if, procurements go up.
The point of the story – data is getting very patchy and difficult to rely on. Best is if you look around and see for yourself what reality is – are people buying more, saving more, are there jobless people around you? Ask your house help, the driver and milkman, bhajiwallah how life is – they will give you the true picture of reality.