Economy
Updated on 28th August 2015
Highlights
- India’s 7% plus growth trajectory unlikely to be rattled by Chinese meltdown
- Decline in petroleum and manufacturing prices purges inflationary pressure.
- Overall agricultural prices will stay contained despite deficit rainfall.
- Rate cut of 25 basis points expected in September RBI review.
- Exports to face severe challenges this fiscal, though overall trade deficit to remain under control.
The latest round of RBI Consumer Confidence Survey of the major metros shows expectations of better overall economic condition, personal income and employment opportunities. The outlook on spending has also improved – while the surveys conducted in September and December last year had around 40% of respondents expecting to increase their spending, in the latest June 2015 round, this ratio more than doubled to 86%.On the flip side, part of the expected hike in spending may be fuelled by perceived continuation of inflationary pressures on household budgets Some early signs of improved consumer confidence are also seen in the industry sales reports – especially in the urban segment. Sales of passenger cars increased by 17.5% in July 2015 compared to last year. Consumer packaged goods sales grew 11% in value terms in the April-June quarter, gaining in pace from the 7% growth seen in previous quarter. Domestic air-passenger traffic growth rate jumped to 20% year-on-year in January-June period from just 4.5% over the same period last year. The rural segment though continues in hibernation – still suffering from a multitude of negative factors like reduced MGNREGA fund inflow, marginal revision in MSPs with softening of global prices, deceleration in rural wage growth, unseasonal pre-monsoon rainfall followed by deficit monsoon, floods in many eastern and northern hilly states, continued delay in implementation of infrastructure and industrial projects, and so on. This is reflected in the 13% decline in tractor sales of Mahindra & Mahindra, the market leader in the segment, and a meagre 0.14% growth in two wheeler sales. The majority growth forecasts for FY 2015-16 for India remain in excess of 7.5%, though the median forecast of 7.6% is marginally higher than 7.3% recorded in FY 2014-15. The outlook is unlikely to be rocked by the recent Chinese turmoil due to India’s stable macro conditions, and domestic oriented economy. If the government can play the reform cards well, the global turmoil can be converted into an opportunity in attracting sustained international investment, especially in manufacturing and infrastructure, which can then push growth onto a higher trajectory.