Q3FY16 - REALLY, DON'T GET OUT THE VICTORY TRUMPETS YET!
By Ruma Dubey
The third quarter ended 31st Dec 2015 GDP came in at 7.3%, very much in line with what most expected. But the good news here was that the GDP estimates for FY16 was revised upwards to 7.6% v/s 7.2%, that of Q1FY16 was revised upwards to 7.6% from 7% and that of Q2FY16 to 7.7% to 7.4%.
This growth number has come in a real surprise given the fact that IIP for Oct as well as Nov was less than 4%. Despite that to see these numbers is indeed a surprise.
Agri sector growth was a dampener; it was actually a degrowth of 1% v/s a 2% growth in Q2. Mining did well with a good growth at 6.5% v/s 5% (QoQ). Construction sector showed a very good growth, up from 1.2% to 4%. Manufacturing did very well at 12.6% v/s 9%. We cannot help but wonder where this growth has come from given the fact that there is really no new investment in the sector. Maybe it is debottlenecking which is showing some effect but it is too early to bring in the victory trumpets.
Q4 is seasonally amongst the lowest in all the quarters. Thus we could see an average of these quarters could get us to 7.6% but Q4 could push us back to 7.3%; in that context, the growth of 7.6%, at this juncture looks a bit ambitious.
Having said this, it is also imperative to say that this GDP data is very volatile, especially in the new series as we have seen previously. We really have no reason to go over the moon, celebrating this GDP. We have to realise that this is an economy undergoing a cyclical change amidst excruciating external factors. And under these circumstances, it becomes all the need important to have a robust manufacturing sector to give a cushion from falling agriculture growth.
Agriculture growth continues to lag. According to the information furnished by the Department of Agriculture and Cooperation (DAC), which has been used in compiling the estimate of GVA from agriculture in Q2FY16, production of food grains is expected to decline by 0.5% /s decline of 4.9% (YoY). Production of oilseeds is also expected to decline by 4.1 % v/s decline of 16%, and that of fruits and vegetables is expected to increase by 0.6% during Fy16 v/s 1.7% (YoY). Crops including fruits and vegetables account for about 61% of GDP in ‘agriculture, forestry and fishing’ sector. Around 39% of GVA of this sector is based on the livestock products, forestry and fisheries, which is expected to register a combined growth of above 5% in 2015-16.
The private corporate sector growth (which has a share of around 69% in the manufacturing sector) as estimated from available data of listed companies was 9.9 per cent at current prices in April-December 2015-16. GVA from quasi corporate and unorganized segment (which has a share of around 25% in the manufacturing sector) has been estimated using IIP of manufacturing. IIP for manufacturing sector registered a growth rate of 3.9% during April-November, 2015-16.
In construction, key indicators of construction sector, namely, production of cement and consumption of finished steel registered growth rates of 2.2% and 4.4% during FY16 compared to 7.9% and 3.6% (YoY).
The market is completely unmindful of all these facts and it will be business as usual tomorrow. The bottomline is that H1 had a sense of momentum and this has slowed down considerably in H2.
What we really need to see now is all the talk getting transformed into action. Reforms need to take off and not get stalled in the Parliament. More than RBI, unless Govt spurs public investment in infrastructure, we could continue to juggle growth numbers by merely changing methods, far from the actual reality. And remember mere rate cuts are not enough - unless people start buying, these cuts remain meaningless. Sentiments are tepid now and the Govt needs to ensure this does not turn negative....
