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economy | IST

Secular uptrend in electricity, usage likely to be 22% higher than pre-COVID period: Kotak Mahindra Bank's Upasna Bhardwaj

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The bunch of September-end macro data has been largely strong. First, India's 8 core sectors grew by a strong 11.6 percent in August, taking the APRIL-August core index almost to 2019 levels. Aurodeep Nandi, India Economist and Vice President at Nomura Financial Advisory and Upasna Bhardwaj, Sr. Economist at Kotak Mahindra Bank analysed the numbers.

Macroeconomic data has been largely strong of late. India's eight core sectors saw growth of 11.6 percent in August, taking the April-August core index almost to levels last seen in 2019. A key highlight of the latest numbers is electricity, with the sector posting growth of 15.6 percent.
Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank, said in an interview to CNBC-TV18 the reading suggests electricity usage would be about 22 percent higher compared to the pre-pandemic period.
“Even before the August data, electricity throughout has been doing well, not just this year even before that. So, this has been a secular uptrend from the beginning,” she said.
The best performance came from coal and natural gas sectors, with each growing 20.6 percent. In coal, poor monsoon rains in August means you could mine more. It rained heavily in August 2020. The cement sector saw 36 percent growth due to a low base.
“Manufacturing is more or less there, so we are looking at 100 percent pre-pandemic levels. Mining would remain below pre-pandemic levels. So, from September itself, we are looking at normalization and that is clearly a good sign going ahead,” Bhardwaj added.
Bhardwaj believes the headline numbers have been very strong and should continue to improve going forward as the capacity utilisations are picking up and factory activity expected to go ahead.
“We will have to see how things pan out in September because we did see much better rains in September and we might see some fizzling off of activity in the core segment in the month of September,” she said.
Also, the high point of August tax numbers is that government has started to spend.
Capex is up over Rs 43,000 crore in August versus less than Rs 17,000 crore in the previous month. Revenue expenditure is also higher at Rs 2.25 lakh crore in August versus Rs 1.65 lakh crore in July.
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Bhardwaj expects the government to start spending in the second half of the year.
“When we had Q1 numbers, we saw that the government was not spending and even the high frequency data wherein we look at the cash balances which are being held up by the government, that also suggests that the states and the center has not been spending as much. So somewhere if they were to meet its budgeted target, they would have to spend rapidly and they will have to ramp that up significantly in the second half of the year,” she said.
The removal of spending curbs on ministries should also aid tax collections -- which in turn leads to a multiplier effect for the economy.
Tax is as good in August as in July. Also, August is lagged data - post advance taxes in mid-September the government revealed that April-September direct tax collection is 56 percent higher.
Even compared with 2019 levels, taxes are growing strongly at 16 percent annually for two years, with corporate taxes growing at a two-year CAGR of 23 percent and excise at 34 percent.
High taxes and restrained expenditure has contained deficit at 31 percent of the full year target. Usually, if one takes a 20 year-average, by August, the government’s fiscal deficit jumps to 57 percent of the full-year goal.
Low deficit is not big news to the market. As the borrowing calendar for the second half of the year was lower than expected, the deficit is factored in.
The sequential momentum on growth has already priced that in for the full-year forecast, Bhardwaj said.
Balance of payments (BoP) showed current account surplus higher than expected due to strong remittances by Indians abroad. BoP surplus is at $32 billion.
Aurodeep Nandi, India Economist and Vice President at Nomura Financial Advisory, believes government spending is not just about intention but about delivering.
“One of the big negative surprises in the GDP print of Q2 calendar year was essentially the fact that where is government spending. What is happening is that the government is saying, let us start ramping up expenditure. One way to look at any fiscal trend is to see how much has happened so far versus previous years. The converse way of looking at it is how much is left to happen versus what has happened in the previous years because government spending is not just about intention, it is about delivering,” he said.
In case of capex, in terms of how much the government has spent this year, it is more than what has been done in the corresponding periods of FY19 and FY20.
“We have ambitious capex targets. So, the amount of spending that is required in the next half year, which is about 66 percent or so, that will require continued momentum. So, the government has fiscal space to deal with higher expenditure. They have excellent tax revenues,” he said.
Nomura has reduced its fiscal deficit projection to 6.2 percent from 6.8 percent.
For the entire discussion, watch the accompanying video.