Goodbye FY18! Here is where the Indian economy stands

Countdown for the end of fiscal 2017-18 (FY18) has almost reached its end, and it would not be wrong to say, that this year had its fair share of surprises and shocks. The Indian economy has displayed varying signs this year, with GDP dropping to three-year low and jumping back to 7%-mark, and on the other hand, there was demonetisation and GST impact on the industry and the wider economy, even as banks continued to firefight their stressed assets burden. There were other shocks like the massive fraud cases coming to light, along with rupee strengthening and fuel prices rising to new levels and many more. However, post-this dizzying 12-month ride, let’s see where the Indian economy stands so far in FY18. 

Care Ratings agency has released a study on Indian economy and its current position: 

GDP

India's Gross Domestic Product (GDP) came in at 7.2% in third quarter October - December 2017 (Q3FY18) - higher compared to 6.3% in Q2FY18 and 5.7%. India's GDP has reached to one-year high, as the last time, the economy stood near 7% mark, was in the corresponding period of the previous year.

source: tradingeconomics.com

The growth in GDP during 2017-18 is estimated at 6.6% as compared to the growth rate of 7.1% in 2016-17.

GVA at basic prices at constant (2011-12) prices in Q3 of 2017-18 is estimated at Rs 30.11 lakh crore, as against Rs 28.21 lakh crore in Q3 of 2016-17, showing a growth rate of 6.7%.

Industrial growth 

Cumulative growth during the first 10 months of the year has been lower at 4.1% (5%) this year. Growth has been supported by pharma (25.7%), computers etc. (17%), motor vehicles (11.8%), other transport equipment (12.7%) and furniture (7.5%). 

In terms of the use based classification growth has been propped up by non-durable goods (10.4%), infrastructure and capital goods (4.4% each). Consumer durable goods output on the other hand declined by 0.3% during this period. 

Inflation 

CPI inflation, which is the leading indicator for determination of monetary policy, was at 4.4% in February 2018. This was contained mainly due to food items which grew by 3.3%. Non-food components had higher rates like clothing (5%), housing (8.3%), transport and lighting (6.8%). 

source: tradingeconomics.com

In the last monetary policy review, the RBI has projected CPI inflation to average 5.1-5.6% during the first half of FY19. This is a signal that interest rates may not be eased this year and that there could be an increase. 

Interest rates

For the period April to date, interest rate movements have been varied. -

• Repo rate has come down from 6.25% to 6%. 
• The 10-years GSec yield was up from 7.17% to around 7.6% till 26th March, which came down to 7.30% after the calendar of auctions for first half was announced Base rate came down from 9.25-9.65% to 8.65-9.45%
• Overnight MCLR was down from 7.75-8.2% to 7.8-7.95%
• One year deposit rate came down from 6.5-7% to 6.25-6.75%
• Corporate bond spreads for AAA bonds was up from around 60 to 90 bps

Banking

For the period April-March 2nd, deposits at Rs 100.18 lakh crore grew by 4% (12.5%). Bank credit at Rs 83.48 lakh crore grew by 6.5% (3.3%) during this period. 

Investments at Rs 34.17 lakh crore slowed down and registered growth of 12.7% (26.4%). Outstanding CPs was Rs 4.60 lakh crore as against Rs 3.98 lakh crore in March. 

For the period April-January, it was observed that non-food bank credit grew by just 2.2%. This was driven primarily by retail credit which increased by 12.9%. Growth in credit to services was nil while manufacturing declined by 2.4%. Medium and large enterprises witnessed negative growth while micro and small had positive growth. The latter was due to the push given by the government for SME finance. 

Major challenge for banks was NPAs. NPAs were at 9.4% in December as per CARE study. RBI had reported an increase from 9.6% to 10.2% between March and September while stressed assets ratio had moved from 12.1 to 12.2%. These numbers are expected to increase by March. 

Equity market

The IPO market was more buoyant this year and for the first 11 months had garnered Rs 1.9 lakh crore against Rs 64,286 crore last year. 

The Sensex started off at the level of 29,621 and touched 33,06-level as of March 27, 2018. While Nifty 50 kicked off trading at 9,237.85-level for FY18, and managed to touch 11,171.55-mark so far in the fiscal. 

Corporate bond market

Data given by SEBI, revealed that private placements was at Rs 5.34 lakh crore for first 11 months compared with Rs 5.55 lakh crore last year. 

As of December 2017, outstanding bond were at Rs 26.47 lakh crore (Rs 24.04 lakh crore in March). Secondary market transactions were however more buoyant with turnover at Rs 16.01 lakh crore for this period as against Rs 12.78 lakh crore last year. 

Mutual funds 

Asset Under Management (AUM) rose from Rs 17.54 lakh crore as of March 2017 to Rs 22.30 lakh crore by end February. The low returns on bank deposits and the boom in the equity market were responsible for this shift in the pattern of savings and investments of households. However, post LTCG announced this time in the Budget there would be a slowdown in growth in this segment. 

Fiscal scene

The Budget had provided a revised fiscal deficit number of 3.5% for the year at Rs 5.94 lakh crore. 

India's fiscal deficit data was released for the period of April - February, where the economic indicator reached to Rs  7.2 trillion rupees ($110.42 billion) - surpassing 120.3% of the budgeted target for the current fiscal year.

Gross market borrowing till March 15 was Rs 5.88 lakh crore. 

A major achievement has been on disinvestment where a sum of Rs 93,603 crore was mobilized against a target of Rs 1 lakh crore. In FY17 a sum of Rs 46,246 crore was collected under this heading. 

External sector 

• Exports growth during the first 11 months of the year was 11.0% as they increased from $ 246.5 bn to $ 273.7 bn
• Imports however grew at a higher rate of 21% from $ 344.4 bn to $ 416.8 bn leading to a higher trade deficit of $ 143.1 bn ($ 97.8 bn) 
• Current account deficit was at 1.9% for the first three quarters as against 0.7% last year. With widening trade deficit the CAD may be expected to increase further
• FDI in the first 9 months were $ 35.9 bn which was the same as that last year. FII investment for the first 11 months were higher at $ 23.3 bn (-1 bn last year). This was mainly due to higher debt flows of $ 19.8 bn
• A stronger capital account led to higher accretion of forex reserves which increased by $ 51.4 bn over March to reach $ 421 bn by March 16th 
• The rupee also fared well and appreciated from Rs 65.54/$ to around $ 64.87/$ on March 27th 

Talking about FY19, Care Ratings said, "The Indian economy has displayed varying signs this year and while the general direction is towards a possible recovery in 2018-19, the issue of overhang of NPA resolution would be a fundamental factor affecting future growth as investment would require finance which will emanate mainly from banks." 

It added,"The focus next year will be on ensuring that the process of solution is on the right track. "