Stirrings of Recovery

The government is on an overdrive on economic reforms and opening up for FDI; economic policies are being liberalised, power deficit is down to negligible levels; infrastructure projects are being approved at a rapid pace; local manufacturing is being encouraged and new investment avenues are being opened up in defence. But the economy just isn't firing. Or, is it?

The answer lies in a closer examination of the various pockets of the Indian economy. While on one hand India's projected GDP growth rate remains among the highest in the world, economists in India and abroad have often wondered that if India is growing at a rate higher than 7 per cent, why doesn't it feel like 7 per cent on the ground! Whether 7.5 per cent GDP growth by the new methodology is really 5.5 per cent as per the previous formula! A US State Department's report chided the government for doing little to improve the investment climate in the country, even questioning India's 7.5 per cent GDP growth. But it isn't the only one. According to CMIE data, investment cycle remains stuck as of June, 2016 with Rs 11 lakh crore worth of stalled projects - near all-time high - almost three-fourths of them in the private sector.

Yet, there's hope on the horizon: For a change, the monsoon's progress has brought alive hope for the agri and the rural economy and above all, inflation. And a few sectors such as cement, steel and auto could be experiencing green shoots. Consumer products, including durables and FMCG, never went into negative territory but have begun to pick up pace. Personal income tax and corporate tax collections in Q1 have jumped 25 per cent and indirect tax by 31 per cent. Is India on the verge of that elusive economic recovery?

The mild recovery in cement demand is not being triggered by the traditional favourite real estate, but by the infrastructure sector. Thanks to select orders dished out by the government to build highways and low-cost housing. Read on page 36 how after years of being in low single-digit growth rates, the sector grew 4.5 per cent in fiscal 2015/16, up from 3.1 per cent in 2013/14. But the January to March quarter of 2016 has seen a robust growth of 11.48 per cent. And that has triggered all-round consolidation in the sector with small and weak players shutting shop and medium-sized cement companies selling out to larger ones. Aditya Birla group's Ultratech has emerged as a giant with a consolidated capacity of over 90 million tonnes, nearly 50 per cent higher than the second largest Holcim. However, large scale greenfield projects are nowhere in sight still.

In steel, after a host of protective measures by the government to ring-fence the domestic players against low cost imports from China, the sector is coming back to life. Steel imports, which had been steadily rising as a percentage of domestic consumption, have now started showing a declining trend. Steel prices (HRC), which had crashed from $744 a tonne in 2008/09 to a 12-year low of $300 per tonne by 2015/16, have now recovered to over $500 per tonne today. As a result, several steel majors are back in the black.

The auto sector may not be back to the roaring 20 per cent growth rate but it has been one of the few silver linings right through the past 7-8 years of slowdown. It grew. It contracted. Then, grew again. Today, the sector has picked up a steady pace of growth quarter-on-quarter. Passenger car sales expanded by 7.24 per cent in 2015/16.

The big question is whether the growth will sustain. But with the monsoon bringing fresh hope, it's hard to argue otherwise.