Global Macro Economic Researcher and Business Strategist by Indraneel Sen Gupta
The Indian economy is standing at mixed doors despite GDP growth above 7.2%. These articles are for depicting the picture of the various probabilities of upcoming Indian GDP growth driven on various angles. These articles will try to bring forth the various angles of the growth outlook of the Indian economy in CY-2019. Keeping the same in mind we have divided the article into parts so that confusion is not created and batter picture of understanding of Indian economic growth outlook could be drawn.
The economic consumption of the Indian economy has been only being carried out by the government in CY2018 and also in the last 3 years. The private sector investments have been lackluster. Much of the blame can be passed to the NPA resolution process and also to the global economy. But govt investments will slow down significantly in the coming days as the election comes into the picture and even after a new government is being formed. The reason being that the government kitty of funding will dry down at a later stage. The private sector needs to brace up for growth strategies based on long-term economic factors. The growth of the Indian GDP of 7.6% in H1FY19 on the back of consumption (both private as well as government) and investments (mainly from the government).
It’s being expected that in FY-20 there will be hiccups of private investments but corporate India has improved its balance sheets. The recent NBFC and Banks problem reacted to liquidity and reluctance of banks for credit growth will create the short term jitters. On the other hand, corporate Indian has reduced its debt levels and equity to debt ratio has improved. The balance sheet of Indian corporates has also shown a marked improvement with debt to equity reaching its lowest level in the last six years. Secondly, the cash flow position of private companies also improved as cash flow generation has been above average in the last three years. This is the key area of improvement which will give Indian economy the fuel of Growth in the coming years.
Recapitalization of the banking industry is only to feed the NPA and write off assets and managing the books. The capital is not being deployed for economic growth factors. This is the problem which Indian economy will face in Fy-20 going ahead. Liquidity crisis will keep chasing unless the Indian private industry turns out to be a fair player. But any boom and bust of NBFC segment will spook liquidity crisis and panic within the community which will place brakes on the consumption and demand in CY-2019.
Gross fixed capital formation (GFCF) is showing signs of improvement moving above the trend line for the first time in the last five years. GFCF’s pace of growth accelerated further at 11.3% YoY in H1FY19 taking the investment rate to 32% from 31.4% in FY18.
According to the RBI, a survey indicates that overall industrial utilization has moved upwards to 76.2% in Q2FY19, thus reaching above the long-term average of 75% after 21 quarters. Existing capacity utilization growth of industries has grown but it does not testify that additional capacity is getting at a slower pace.
Further, a collation government would spook more problems for the govt capex and hence private have to come up in the front stage for growth. Cash reserve companies would be the king in these circumstances and hence more focus should be on them.