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NCAER - IIC
Mid-Year Economic Review/Outlook
2016-17
November 5, 2016
New Delhi
Outline of Presentation
• Through the looking glass:
Macro-economic performance in H1 2016-17
• Pluses and minuses :
Do pluses outweigh minuses?
• Near Term Challenges
• Forecast & Outlook
NCAER-IIC MYR
Then (2015) & Now (2016)
Fast-Forward to Nov 2016:
Did we use that second chance?
What was H1 2016-17 like?
A period when a number of factors, including normally irascible Parliamentarians, fell in line
Flashback : In Nov 2015 we’d described H1, 2015-16, as:
Period when India almost lost its way !
And said the good thing about H2 2015 – 16 was : We’d got a (undeserved ?) second chance
Net Result: World is looking at India
with new respect !
In November 2015, we’d asked
How will the world see us in Nov 2016?
• The answer - with new respect
–India is at one of the most dynamic periods of its history *
–Indians criticize themselves too much*
• The world does not look at India as a hot or trouble spot* (that was before 18 of our soldiers were killed at Uri!)
*sample of quotes from senior world bank officials/investment bankers
In a nutshell….
• In Nov 2015, we’d said:
‘It is the best of times,
it is the worst of times….’
Charles Dickens : Tale of Two Cities
• In Nov 2016 , we’re modifying that to:
‘It is the best of times but,
also the most tricky of times….’
Why is it the best of times?
• Pluses: Agriculture: Normal Monsoon
• Manufacturing : faint signs of revival
• Services : holding up
• Bond yields lower /Retail investors return
• Inflation under control
• Forex reserves higher ; CAD lower
• Competitiveness up 16 ranks
Why is it the most tricky of times?
Because negatives remain !
• Low GFCF & private investment
• Tepid revival in manufacturing
• Poor growth in bank credit
• Fiscal situation getting worrisome
• Growth largely jobless
• Exports show little sign of revival
• Global slowdown /Geo-political anxieties
Do pluses outweigh
the minuses?
• Is the glass half-full or half empty?
• Miles Law : Where you stand depends on where you sit! (Rufus E Miles)
• ‘Whatever you can rightly say about India, the opposite is also true.’ Joan Robinson
• Hence almost any opinion will be open to question & to criticism
2016 2017
YoY July 2016 estimate
Oct 2016 estimate
July 2016 estimate
Oct 2016 estimate
World 3.1 3.1 3.4 3.4
Advanced economies
1.8 1.6 1.8 1.8
US 2.2 1.6 2.5 2.2
Euro area 1.6 1.7 1.4 1.5
UK 1.7 1.8 1.3 1.1
Japan 0.3 0.5 0.1 0.6
Emerging economies
4.1 4.2 4.6 4.6
China 6.6 6.6 6.2 6.2
India 7.4 7.6 7.4 7.6
IMF gives India a thumbs up
2014 2015 2016 2017
World 3.4 3.2 3.1 3.4
Adv eco 1.9 2.1 1.6 1.8
US 2.4 2.6 1.6 2.2
Russia 0.7 -3.7 -0.8 1.1
China 7.3 6.9 6.6 6.2
India 7.2 7.6 7.6 7.6
Brazil 0.1 -3.8 -3.3 0.5
S Africa 1.6 1.3 0.1 0.8
Source: IMF World Economic Outlook Oct 2016
India Shining? Or is it only in comparison?
2014 2015 2016 GDP per
capita In PPP terms
HDR (2014)
US 2.4 2.6 1.6 55805 (5) 55,805 (10) 8
Russia 0.7 -3.7 -0.8 9055(65) 25,411(48) 50
China 7.3 6.9 6.6 7,990 (72) 14,107 (84) 90
India 7.2 7.6 7.6 1,617 (139) 6,162 (122) 130
Brazil 0.1 -3.8 -3.3 8,670 (70) 15,615 (76) 75
S Africa 1.6 1.3 0.1 5,695 (89) 13,165 (88) 116
figs in brackets are rankings Source: IMF WEO
India Shining? Look again!
Macro-economic Puzzles ?
‘In India not only future , even past is uncertain’ YV Reddy
• GDP down, but GVA up
• IIP low, but manufacturing GVA far better
• Boom in consumption, not in corporate profits
• Inflation: CPI down/WPI up..rural > urban
• Q1 GFCF down QoQ, but up sequentially
0
1
2
3
4
5
6
7
8
9
Q1FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2FY16 Q3FY16 Q4FY16 Q1 FY17
GVA GDP
GDP or GVA?
0
5
10
15
20
25
30Rainfall Deficit
No doubt the rains are better!
-2
0
2
4
6
8
10
12
14
Q1FY16 Q2FY16 Q3 FY16 Q4 FY16 Q1 FY17
Manufacturing & Services holding up
Centre (core)holds, so things cannot fall apart! with apologies to WB Yeats ..things fall apart, the centre cannot hold’
0
1
2
3
4
5
6
7
8
9
Apr/16 May/16 Jun/16 Jul/16 Aug/16 Sep/16
Core Sector Growth Rate
0
0.5
1
1.5
2
2.5
1 2 3 4 5 6 7 8 9 10
Current account deficit is sharply lower ..Good? Bad? But not ugly!
Gross Fixed Capital Formation( % of GDP)
Current prices Constant prices
Q1 FY15 31.6 32.7
Q2 FY15 31.1 32.3
Q3 FY15 29.9 31.7
Q4 FY15 30.1 32.4
Q1FY16 31.6 32.7
Q2 FY16 31.4 32.9
Q3 FY16 27.6 29.9
Q4 FY 16 26.9 29.4
Q1 FY17 28.3 29.6
Picture not as bleak as made out?
Year No of deals Amount (Rs cr)
2009 20 19,544
2010 64 37,534
2011 37 5,966
2012 11 6,835
2013 3 1,283
2014 5 1,200
2015 21 13,614
2016* 20 20,217
* till 20 Sept Source NSE
IPOs do well; but can you smell any investment?
CPI CPI (food)
Period Rural Urban Combined Rural Urban Combined
Sep-15 5.05 3.61 4.41 4.05 3.45 3.88
Oct-15 5.54 4.28 5 5.18 5.47 5.25
Nov-15 5.95 4.71 5.41 5.75 6.53 6.07
Dec-15 6.32 4.73 5.61 6.41 6.31 6.4
Jan-16 6.48 4.81 5.69 6.93 6.5 6.85
Feb-16 6.05 4.3 5.26 5.96 4.23 5.3
Mar-16 5.7 3.95 4.83 5.79 3.98 5.21
Apr-16 6.17 4.68 5.47 6.66 5.97 6.4
May-16 6.45 4.89 5.76 7.67 7.24 7.47
Jun-16 6.29 5.26 5.77 7.69 8.16 7.79
Jul-16 6.66 5.39 6.07 8.18 8.8 8.35
Aug-16 5.87 4.22 5.05 6.32 5.1 5.91
Sep-16 4.96 3.64 4.31 4.43 2.88 3.88
India vs Bharat divide? And in food inflation?
Year WPI CPI Repo rate
Total Credit
Manufacturing credit
Retail credit
2010-11 9.6 6.75 20.6 22.3 17.5
2011-12 8.9 8.5 17 20.7 13.8
2012-13 7.4 9.9 7.5 13.5 15.1 14.7
2013-14 5.9 9.4 8 13.6 12.8 12.5
2014-15 2 6 7.5 8.6 5.6 15.5
2015-16 -2.5 4.9 6.75 9.1 2.8 19.4
H12016-17* 2.3 5.4 6.5 -0.3 -4.1 4.6
*till 19/8/2016, Source: RBI
Credit growth shows no pickup; but retail credit improves; is that good enough?
10 year Bond yields
YTD $ mn
GDP growth Q2
US 1.69 India 6447 7.1
UK 0.87 Indonesia 2786 5.2
France 0.32 Philippines 804 7
Germany 0.03 S Korea 8717 3.2
Sweden 0.28 Brazil 4406 -3.8
Switzerland -0.45 Mexico 3758 2.5
Japan -0.01 Malaysia 500 4
India 7.05 Vietnam -106 6.7
Source: Bloomberg & Economist
FIIs rush in; but not only to India
Period Growth in tourist arrivals
%
Calendar yr 15 4.4
H1 –FY 16 8.9
Jul-16 17.1
Aug-16 11.8
Source : Ministry of Tourism
Foreigners keep faith in India; undeterred by our harsh summer!
Global outlook more rosy
and Fed in no hurry to act
Median Fed macroeconomic projections 2016 2017 2018 2019 Long-term
GDP Jun-16 2 2 2 na 2
Sep-16 1.8 2 2 1.8 1.8
Unemployment rate
Jun-16 4.7 4.6 4.6 na 4.8
Sep-16 4.8 4.6 4.5 4.6 4.8
PCE Inflation (% YoY) Jun-16 1.4 1.9 2 na 2
Sep-16 1.3 1.9 2 2 2
Core PCE inflation (% YoY) Jun-16 1.7 1.9 2 na na
Sep-16 1.7 1.8 2 2 na
Median Fed Funds Rate (%) Jun-16 0.875 1.625 2.375 na 3
Sep-16 0.625 1.125 1.875 2.625 2.9
Dec 2015 % change YoY
Sept 2016 % change YoY
All items -17.8 3.3
Food -14.2 3.6
Metals -26.9 -1.1
Gold -10.5 19.4
Oil -35.2 -2
Source: Bloomberg
But is the commodity cycle reversing?
6.6
6.7
6.8
6.9
7
7.1
7.2
7.3
7.4
7.5
7.6
4/4
/20
16
11
/4/2
01
6
18
/04
/20
16
25
/04
/20
16
2/5
/20
16
9/5
/20
16
16
/05
/20
16
23
/05
/20
6
30
/05
/20
16
6/6
/20
16
13
/06
/20
16
20
/06
/20
16
27
/06
/20
16
4/7
/20
16
11
/7/2
01
6
18
/07
/20
16
25
/07
/20
16
1/8
/20
16
8/8
/20
16
16
/08
/20
16
22
/08
/20
16
29
/08
/20
16
6/9
/20
16
12
/9/2
01
6
19
/09
/20
16
26
/09
/20
16
30
/09
/20
16
yield
Govt saves on interest payments
24000
25000
26000
27000
28000
29000
30000BSE SENSEX
Stock Markets: No longer irrationally exuberant!
The billion dollar question!!
• Crouching tiger?
• A Nearly-power?
• Lumbering elephant?
Tortoise finally picking up pace?
Making sense of mixed signals?
‘The events of the past few years have
revealed limits in economists’
understanding of the economy & suggest
several important questions I hope the
profession will try to answer.’
Near-Term Challenges :
Internal
• Revive investment; improve productivity ;
• Reverse decline in manufacturing sector to ensure more jobs
• Improve governance, Legal reform
• Improve infrastructure: physical & social
• Structural reform - land and labour markets
• (sadly nothing seems to have changed since Nov 2015!)
Near - Term Challenges :
External
• Reversal of US interest rate cycle
• Threat of recession in Europe
• Slowdown in China’s growth rate
• Stagnation in world trade
• Growing protectionism/exclusion from trade pacts like TPP
• (not much has changed here too though Fed raised interest rates in Dec 2015)
• In the face of all this ………….
Question is: Can we make it?
Yes, we can! Why?
UP
AP
Gujarat
M
a
h
a
G O I
Because states & centre working as partners, economic plumbing is being repaired; reforms continue. Net result: Glass is half-full, not half empty
To conclude (with apologies to Shakespeare )
……There is a tide in the affairs of nations Which taken at the flood, leads on to fortune. Omitted, all the voyages are bound in shallows and in miseries.
On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.
Julius Caesar Act 1V Scene III
FORECAST
Select Outlook Indicators: Reason for Hope
Temporally and Spatially
Even Monsoon
Investment Climate
Source: NCAER BES Survey
PMI Manufacturing shows uptick
in October 2016
44
46
48
50
52
54
56
Manufacturing Services Composite
Source: Markit Economics
Positive Momentum
Table I.6: Quarterly CAPEX Aggregates, December 2015 to September 2016
` trillion December,
2015
March,
2016
June,
2016
September,
2016
New projects 1.27 3.34 1.49 1.98
Completed projects 0.87 2.18 0.79 2.13
Stalled projects 0.48 0.92 1.05 0.34
Revived projects 0.39 0.58 0.38 0.49
Implementation stalled
projects
0.8 0.91 0.39 0.48
Source: CMIE
Core IIP shows an
upturn
Source: Office of Economic Advisor
WPI tapering down and
IIP going up
-12
-8
-4
0
4
8
13M07 14M01 14M07 15M01 15M07 16M01 16M07
HPIIP0405SACYCLEHPWPI0405SACYCLE
-80
-40
0
40
80
120
2014M07 2015M01 2015M07 2016M01 2016M07
HPIIPSAGRCYCLE HPWPIINFL0405CYC
Cyclical Components of IIP and WPI, Seasonally Averaged, July 2013 to July 2016
IIP Growth Rate and WPI Inflation Rate, April, 2014 to August 2016
Increase in exports and
BCC
Assumptions
• Rainfall, Actual data from the IMD, %y-o-y increase is 9.3% in 2016-17
• BSE Movement (%yoy): 2.7% based on ARIMA
• BCC (%yoy)- 14%
• Total Expenditure at the Central Level (%yoy): 10.8%
• World GDP Growth – 3.2% in 2016-17
• International Crude Oil Price – (-)7.1%
• Non-fuel commodity Price – (-)1.8 per cent
• FDI inflows (%yoy)- 30%
• FII (%yoy) – 10%
• Net invisibles (%yoy)- 5%
• WPI Energy (%yoy): 2.6%
• Exchange Rate: Rs 67 per dollar
• Disinvestment: Rs 36,000 crore
Forecast, 2016-17 using
Quarterly Model
Quarterly Gross Value Added at Basic Price Estimates for 2016–17
January 2016 May 2016 July 2016 October 2016
2016–17:Q1 7.4 7.8 7.1 7.3
2016–17:Q2 7.2 9.5 8.1 7.5
2016–17:Q3 7.2 6.9 7.6 7.7
2016–17:Q4 7.2 7.7 8.0 8.1
2016–17 7.2 8.0 7.7 7.7
Forecast, 2016-17 using
Annual Model NCAER GDP Forecast for 2016–17
Item January 2016
May 2016
July 2016
October 2016
GDP Market Prices (2011–12 prices, % yoy)
7.4 7.7 7.6 7.6
GVA Basic Prices (2011–12 prices, % yoy)
N.A. N.A. 7.2 7.3
GVA Agriculture (2011–12 prices, % yoy)
N.A. N.A. 4.1 3.5
GVA Industry (2011–12 prices, % yoy)
N.A. N.A. 7.1 7.6
GVA Services (2011–12 prices, % yoy)
N.A. N.A. 7.9 8.2
Forecast, 2016-17 using
Annual Model NCAER GDP Forecast for 2016–17
Item January 2016
May 2016
July 2016
October 2016
Exports ($ value) (%yoy)
0.7 –1.6 2.5 1.2
Imports ($ value) (%yoy)
3.6 –0.6 –8.0 –1.1
Inflation (WPI) (% yoy)
1.0 0.9 2.8 3.1
Current account balance as percentage of GDP
–0.3 –1.0 –0.7 1.1
Fiscal Deficit (Centre) as percentage of GDP
4.2 3.5 3.1 3.5
MYR Team
Overview Mythili Bhusnurmath Forecast: Bornali Bhandari Agriculture: Anil K. Sharma Industry: Saurabh Bandopadhyaya Services: Devender Pratap Money and Credit: Pallavi Choudhuri Prices: Anusha External Sector: Rajesh Chadha & Anjali Tandon Public Finance: Mythili Bhusnurmath Research/ Data Support: Ajaya Sahu, Praveen Sachdeva Organisational Support: Sudesh Bala
Thank You