Anto Antony, ET Bureau
NEW DELHI: Growth ahoy! A number of leading indicators, project investment that
refuses to flag, a pick-up in hiring, freight movement at the
major ports and encouraging data from a number of key manufacturing
segments indicate that the downturn has bottomed out and that the economy will
regain its lost vigour shortly.
A leading indicator is a composite of a variety of indices that track activity
in vital economic sectors. Nomura's Composite Leading Index (CLI), UBS' Lead
Economic Indicator (LEI) and ABN Amro' Purchasing Managers' Index (PMI)
indicate a pick up in growth soon. CMIE's capex database, which tracks
investment by companies, shows no significant slowdown in investment activity.
Strong performance of sectors such as auto, cement, steel, capital goods and
port traffic along with record high telecom subscriber increases corroborate
the strong turnaround thesis suggested by these lead indicators.
Following three successive months of climb, the LEI index for India now stands
at 2.1, after hitting a low of negative 2.08 in December 2008. The LEI is a
composite indicator of many variables, including government bond yields, M1
money supply, currency risk premium, foreign exchange reserves and stock market
gains.
UBS' economist Philip Wyatt expects the recovery to sustain because of the low
levels of excess capacity, private sector indebtedness and non-performing loans
in India. "With this significant rebound in LEI, we are more confident of a
turning point in the industrial cycle by June 2009," adds Mr Wyatt in a
research report.
The CLI, used to identify the turning points in the growth rate cycle, rose in
the first quarter of 2009 after four consecutive quarterly declines. Since the
CLI indicates a turnaround in non-agricultural GDP growth rate with a
two-quarter lead time, the pick-up in first quarter of 2009 suggests a recovery
in economic activity from June onwards.
The PMI, an indicator of manufacturing activity in the country based on a
survey of 500 companies, has improved from a low of 44 in December 2008 to 49.5
for March 2008. A reading below 50 indicates contraction.
That the PMI has recovered to nearly 50 suggests that manufacturing is now
about to enter an expansion phase. The suggestion is that inventories have been
run down, necessitating stepped-up production. The number of cars sold in March
at 1,66,837 was 45% higher than the 1,15,334 sold in December 2008. Two-wheeler
sales climbed 42% from 4,61,302 in December, to 6,54,017 in March.
The index of industrial production has inched its way to positive territory,
even as capital goods production registered a growth of 10% in February.
CMIE's capex database of new and ongoing investments in India indicates that
both the rate of new investment project announcements and the pace at which
projects are being commissioned remain robust. It says the downward revision of
projected growth rate for the current fiscal by both the Bretton Wood
institutions, the World Bank and IMF, is baseless.
According to the database, the momentum in commissioning new projects will
continue into the next fiscal as well. Over 1,000 projects involving total
investments of Rs 4,90,000 crore are on schedule and will be commissioned in
2009-10. Projects worth a record Rs 7,90,000 have been announced in the quarter
ended March 2009 itself, suggesting that corporates have not pared investments
to the extent expected.
Import data shows that even as overall imports have been slowing down, project
import growth has remained robust (200% growth in January). While portfolio
investment inflows have been fickle, direct investment inflows remain strong,
prompting offcial expectation that FDI inflows in 2009 would best the realised
inflow of $33 billion in calendar 2008 and touch $40 billion.
This should put to rest fears of a slowdown "as a result of weaker investment",
as suggested by the IMF. And also allay concerns over OECD's warning of a
downside risk to India's growth trajectory. In its interim outlook on economic
growth, OECD has warned of that, in case, "...firms do not take into account a
likely turnaround by end of 2009 and hence scale down their investment plans
more than expected."
India's chief statistician Pronab Sen said, "Keeping in mind the fact that a
majority of the corporates have only deferred their investment plans and have
not scrapped them altogether, I would say that if the global scenario improves,
the growth rate in India will pick up at a fast pace."
Going by a survey conducted among manufacturers, industry bodies like FICCI too
share the optimism. In the current quarter, prospects look better for the
Indian manufacturing sector, with six out of 12 sectors likely to witness
positive growth.
These are textiles, metals and products, machinery, cement, FMCG and
miscellaneous industries.
The prices of manufactured items, which have been firming up for the previous
eight weeks after slipping from August onwards, also hint at a revival in
demand.
http://economictimes.indiatimes.com/articleshow/4461178.cms?flstry=1
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