Economy updates - India's GDP growth, Overseas borrowing, Chinese recovery

Important updates from the economy - India's GDP growth, Overseas borrowing, Chinese recovery

 Economy updates - India's GDP growth, Overseas borrowing, Chinese recovery

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• Story # 1: Economists estimate GDP growth in the range 13.1-23 per cent for the first quarter (Q1) of this fiscal year. Former chief statistician Pronab Sen has projected GDP growth at 17-18 per cent, and also said actual growth would be much lower because the quarterly numbers did not take into account the results of unlisted companies (that are doing badly).

1. GVA and GDP - One may look at the gross value added (GVA) numbers because the GDP numbers were likely to be bolstered by strong tax collection in Q1. Net product taxes, which take out subsidies, are added to GVA to arrive at GDP.
2. Experts forecast GVA growth in Q1 FY22 at 16-17 per cent and believe this to be a relatively good gauge of the economic performance than GDP in the current year. Given the sharp rise in indirect taxes, GDP expansion will be at a deceptively high 19-20 per cent.
3. If one looks at FY22, some say it will be a V-shaped recovery. but this will be because of minus 7.3 per cent growth in FY21. Almost all economies in the world are expected to have V-shaped recovery this year. Will it be sustained?
4. Do the GDP numbers reflect the ground realities because they would be driven by listed firms’ results? To this, some say there was no doubt about the disconnect between how financial markets were performing and the economy. But the stock markets will continue to perform well on strong global cues and the abundance of liquidity, which in turn is cleaning up the corporate balance sheet. Bu consumer demand should pick at a sustained pace.
5. The IIP was up 45 per cent in the first quarter due to the 134.63 per cent rise in April owing to a low base. However, the PMI for manufacturing was 51.46 in the first quarter. A reading above 50 indicates expansion. The PMI was 48.1 in June, which is contraction. Similarly, the PMI services was 47.2 in April-June.

• Story # 2: After hitting a four-quarter high of $15.52 billion in Q4 FY21, overseas fund-raising by India corporates nosedived to $4.59 billion in the Q1 of the current fiscal. Reasons? Muted credit demand and absence of major expansion plans by domestic corporates.

1. There are two major reasons (for the drop in ECBs). First, the investments did not take off in the first quarter due to the second wave and lockdown. Second, the overall investment scenario in the country itself is still very dull, and it is getting reflected in the external borrowings also.
2. Overseas borrowings had picked up momentum with the gradual unlocking of the economy as Indian corporates raised ECBs worth $8.97 billion in the second quarter, $7.04 billion in the third, and $15.52 billion in the last quarter.
3. Nobody is taking credit even in the domestic market. In the corporate bond market, the issuance in the first four months in the current fiscal, it is much lower than what it was in the same period last year.
4. RBI liquidity measures - The higher borrowing in FY21 was primarily on account of the RBI’s special liquidity measures – LTRO and TLRO1 – which prompted fund-raising from the debt capital markets owing to the conditions associated with these liquidity measures. Bank credit to corporate remains subdued. The credit to agriculture and allied activities continued to perform well, registering an accelerated growth of 11.4 per cent in June compared to 2.4 per cent in June last year. But credit growth to industry contracted by 0.3 per cent in June 2021 from 2.2 per cent growth in June 2020.
5. ECBs are still cheaper than domestic borrowings since interest rates are in the near-zero levels globally. Demand for external borrowings largely depends on when the investment cycle picks up.

• Story # 3: China’s economy slowed more than expected in July '21 as extreme weather and the highly contagious Delta variant of the coronavirus swept across the country, adding more strains to a recovery that was already plateauing more than a year after the pandemic first exploded. Monthly indicators of industrial, consumption and investment activity all showed growth retreating more quickly than expected—and decelerating from June’s yearly growth rates—according to data released Monday by China’s National Bureau of Statistics.

1. Latest data showed two key contributors to the headline gross domestic product figure: industrial production, which rose 6.4% from a year earlier, and fixed-asset investment, up 10.3% during the first seven months of the year from the year-ago period.
2. Both rates of increase fell short of expectations, and marked a slowdown from June’s growth rates. The story was even more disappointing with respect to domestic consumption, another major contributor to the GDP figure and one that was already lagging far behind China’s industrial and export sectors. Retail sales growth slowed to 8.5% in July compared with a year earlier, a pullback from June’s 12.1% increase.
3. Opinion is divided on whether Chinese policy makers will step in with support for the economy. Even with the disappointing figures, China is projected to be comfortably on pace to exceed its full-year growth target of 6% or more. In the first half of 2021, China’s economy grew 12.7% compared with the same period a year earlier.
4. One key question is how quickly authorities are able to control the current outbreak of the Delta variant, which has resulted in the shutdown of a major Chinese port and led to broader travel restrictions across the country since it first appeared about a month ago.

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