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Macro economic concerns 2018-19 (More concerns (Risks at this juncture…
Macro economic concerns 2018-19
Possible scenario
Agri growth expected to be best at 3.4%
Service sector will do well due to high public expenditure,as it is the last year before elections
Mfg sector likely to grow
Growth rate expected to be more than 7%
CAD and Merchandise trade deficit will rise
India's export growth rate in 2017-18 9.78%
External environment
Trade wars already started.
Sanctions on Iran will have impact on crude oil output and prices
What should India do?
Make exports competitive: How?
Stabilise exchange rate
Increase efficiency in Production
Better infrastructure, skilled manpower
Get a a place in Global value chains, Quality Orientation
Rupee depreciation: stabilise?
rising trade deficit and outflow of capital
resulted in rupee depreciation==> which is a normal thing
Ensure rupee doesnt appreciate in real terms, a sit renders less export earnings
RBIs intervention should only smoothen volatility, and not lead to appreciation of Rupee
Recover Banking system: How?
NPAs in scheduled commercial bank-11.6%
PSBs NPAs - 15.6%
High NPA level dampened the effect on provision for new credit
Credit to Industrial sector has slowed down
Thus recovery of Banking system must, to sustain high growth of Industrial sector
Fiscal deficit
Central Govt's
fiscal calculations are within limits.
Concern: Regards to GST revenues
-As these are running behind budgetary projections, and refunds are pending
Impact on Govt expenditure as a result if increased MSPs
In news
Indian economy grew at an impressive rate
of 8.2% in April-June quarter,--Fastest pace in 9 years
Manufacturing sector grew at 13.5% as compared to shrink of 1.8% in last year same quarter
The construction and agriculture sectors
grew by 8.7%(1.8%) and 5.3%(3%)
Auto sales and industrial output are in
sync with these numbers.
Reason for hugh growth
because of resolution of several GST
transition problems.
Budgetary push to the rural economy through
2018-19 Budget
the economy
grew just 5.6% in Qi of 2017-18, due to demonetisation and implementation og GST
-Base effect causing higher growth now
Govt spending increased by 10%, helping in boosting Fixed Gross capital formation
Concerns
86% of the budgeted fiscal deficit target for the current
year has been reached within the first quarter.
GST collections, have dipped to about Rs. 94,000 Cr in August
Rupee is falling and the oil price trends as well as
expanding current account deficit are equally worrying.
RBl's expectation of rise in inflation in second half of
this year is a cause of concern.
Growth in the services
has decelerated from last year's levels.
Normalcy in monsoon is showing great regional variations
RBI has already increased interest rates twice:
-Pro active policy making needed now, with continuous pursuit of well crafted reforms
More concerns
India is turning out to be a consumption driven economy
-Youth want more of electronic goods, hence Indian GDP driven by Consumption. This is the reason for large scale imports into India
-This isnt the case with China
--As it invested more in capacity formation, because of which it is able to manufacture and export to the world
In an investment driven economy, capacity generation will benefit the future generations
But we havent developed the competetive mfg sector
And less exports and more imports hurting India
Investment and savings which recorded boom during pre financial crisis has seen decline in current years
"Incremental capital output ratio" (ICOR) is increasing these days. THus India will have to invest heavily in future if it plans so, for same amount of output
Indian merchandise exports as share of global exports are constant at 1.7%
Indian exports as percentage of GDP fallen from 17% to 12-13%
Although we have sufficient coal reserves, we are importing coking coal
Edible oil import of 12b Dollar hurting Indias's BoP
India isnt a part of Global value chain, where various parts are manufactured in different parts of the world
We are at the bottom of SMILE curve, which is hurting our revenues
Savings rate, Investment rate are coming down
-Household sector which involves unorganised sector has seen decline in saving from 23.64% in 2011-12 to 16.26% as % of GDP
-GCF also of household sector has seen decline from 15.75% in 2011-12 to 3.76% in 2016-17 as a % of GDP
Demonetisation effect has caused base effect to result in high growth in mfg and construction sector
Risks at this juncture
Trade wars, International crude oil prices likely to keep CAD under stress
Depreciating rupee will increase oil prices, If govt cuts on taxes, FISCAL deficit will increase