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Indianomics: Has the Indian economy troughed out? Here is what economists say

Updated : December 13, 2019 09:01:10 IST

After a bleak first half, some economic data appears to be turning around. The industrial output number for the month of October was a contraction of 3.8 percent but that is still better than a contraction of 5.1 percent for the month of September.

Power output for the month of November is negative 4 percent but that is still better than negative 12 percent for the month of October.

If you looked at fuel consumption at 10.5 percent growth and passenger airline traffic at 11 percent growth in the month of November, it does look like the second half is seeing better traction in terms of consumption.

We are reaching the end of calendar year 2019, so how is the economy shaping up and have at least troughed out? That is the question Latha Venkatesh asked to Pronab Sen Former Chief Statistician, Pranjul Bhandari Chief India Economist at HSBC, Sudipto Mundle Board Member of NIPFP and Soumya Kanti Ghosh Group Chief Economic Adviser of SBI.

Sen said, "I don't think the economy is troughing out. What we are seeing is small blip here there but directionally everything seems to be pretty much the same. The really worrying part of it is the fact that capital goods is in dire trouble. Consumer durables which had been holding up our down. The fact of the matter is that the uptick that you are possibly seeing in November could have the effect of this shift in the festive season. So, that could be playing itself out and so in which case we shouldn't be holding our breath."

Bhandari said, "The headline from yesterday seems to suggest that inflation is up and industrial production has also improved. However the big question that we need to ask now is for how long will it last? When you look at industrial production it was a smaller contraction compared to the previous month but if you look at the lot of internals, they don't look very encouraging. Capital goods, infrastructure and construction goods, consumer durables, all three of them have been contracting for three straight months in a row. So, not very exciting yet."

"Core inflation which is another indicator of demand was low at about 3.8 percent, so doesn't look convincing either. So, I would say, right now at best this could be some sort of bottoming out and stabilisation but not an increase or a big meaningful uptick in growth. I do think that in the quarter ending December GDP growth will be slightly better than the previous quarter, so closer to about 4.8 percent compared to 4.5 percent in the previous quarter but nowhere close to the 6 percent number where our aim should be to reach as soon as possible. So, may be some stabilisation but not a convincing uptick that I can see at this point", Bhandari added.

Mundle said, "You had Diwali even though it was a rather sombre Diwali, it may have had a slight uptick in a few things. That being said, we may see quarterly growth bottoming out or perhaps not getting worse this quarter compared to the second quarter, may be even a slight uptick. We do these annual forecast which we compare with the quarterly high frequency forecasts and we found that they were about the same for the whole year - I am talking about fiscal 2019-20 compared to Q2, so that would suggest to us that may be we are finally bottoming out but I wouldn't hold by breath. Till we see a turnaround the situation is quite dire."

Ghosh said, "I think liquidity was never a problem. The problem was basically the risk sentiments in the market. To that extent, I am not sure how that sentiment has improved because even if you look into the credit data which has been released and the utilization of that credit debt or working capital limit at least from our bank still remains significantly on the lower side. So, that means that people are just not using the money which is also being sanctioned to them. So, this is point number one. The second point, I think while all of us agree that there could be some bits of green shoots happening here and there in the economy, even though not on a broad scale, but the point to remember, and as it happened in the last three to four years, you will see that as you move towards Q3 and Q4, the gap between the gross domestic product (GDP) and gross value added (GVA) will significantly widen. So, I have a hunch that the GVA number which came in at 4.3 percent in Q2, could actually be lower in Q3 even though the GDP number could be slightly higher. So, to me, that means that the transfer payments which are happening in the economy are still stuck and that will continue to remain stuck as long as this fear of fiscal deficit remains in the system."

Ghosh further added, "To be on the positive side, the GDP could improve marginally or I am not sure whether this could actually be a decline from 4.5 percent because we have not made the estimate, but as of now it seems it is holding at that level. However, I am sure that the GVA number could actually see a downside from the second quarter. If that is the case, I will not say is that to be an improvement from Q2 what we have seen."
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