By Ruma Dubey

The Q1FY16 (April to June 2015) was largely expected to be around 7.5%. And it came in at 7%, down sequentially from 7.5% but up from 6.7% (YoY). Recovering to be consolidating if not gathering momentum; that was the perception but these numbers come as a disappointment. Given the lower energy, commodity prices, one would have seen discretionary production but this number shows that there has been some staggering of growth. Clearly what we see is some level of resistance of the economy braking out of a narrow band. Lower commodity and stable food prices have not helped the economy break out and that is what we need to address.

QoQ, manufacturing growth was at 7.2% v/s 8.4% and agriculture did well at 1.9%% v/s a degrowth of 1.4%. Trade and hotels showed a growth of 12.8% v/s 14.1%. Electricity was dismal at Mining was at 4% v/s 2.4%. Construction was very good at 6.9% v/s 1.4%.

This number of Q1 is significant as it gives us an indication whether what Moody’s estimates is right or is the Govt right in being optimistic? Moody’s cut back India’s GDP to 7% for FY16 while the Govt is sure about the achche din, standing by strongly with its earlier projection of 8.1%. But looking at the Q1 number, the Govt surely has to work harder to prove Moody’s wrong!

Agriculture, YoY is a disappointment; it is down from 2.6% to 1.9%. Yet, it is a good growth given the unseasonal rains. But rains have been playing truant and looks like IMD will be proven right and not Skymet, at least at this juncture. Food prices have remained stable and as we look ahead, clearly it would be more about expert food management which will be critical, going ahead, to keep a leash on prices.

According to information given by the Department of Agriculture and Cooperation (DAC), production of rice, wheat, coarse cereals and pulses registered growth rates of (-)8%, (-)7.2%, (-)1.4% and (-)12.8% respectively during the Rabi season (which ended June 2015). In commercial crops, production of oilseeds declined by 17.6% .The crops including fruits and vegetables account for about 5.9% of GDP in ‘agriculture, forestry and fishing’ sector. Around 41% of GVA of this sector is based on the livestock products, forestry and fisheries, which registered a combined growth of above 6%.

In manufacturing, the private corporate sector (accounts for 65% in manufacturing sector) as estimated from available data of listed companies with BSE and NSE is 7.9% at current prices of Q1FY15 v/s 13.8% (YoY).  The quasi corporate and unorganized segment (which has a share of around 27%) has been estimated using IIP of manufacturing. IIP manufacturing registered a growth of 3.6% in current Q1 v/s 3.9% (YoY).

The market is completely unmindful of all these facts as it is now focused on two dates – 17th Sept when the US Fed meets and then 29th Sept when RBI decides on rates. But before the RBI decides it would have another set of data – IIP for July (Sept 11) and CPI for August (Set 14). With the current GDP data showing a sign of some slowdown, the pressure is sure to get immense on the Governor to bring down the rates. There has been some indication or rather, a hint that Rajan was not closed to rate cuts in this year. But he is sure to wait and see the performance of the monsoon – that will be a decisive factor.

And also as rightly said by the RBI Governor, it is better banking practices which can bring down rates. He said that fixing legal loopholes in the financial system that helps unscrupulous promoters game the system, will do a lot more to bring down borrowing costs than monetary policy actions. Instead of bringing down rates, he has rightly suggested introduction of monetary incentives for members of Debt Recovery Tribunals (DRT) that bring down the duration of hearing of cases, a limit on number of stays that courts can grant against recovery of loans, making appeals against DRT orders costly as well as introducing a whole new bankruptcy regime. 

And realistically speaking, what can a token 0.25 or even a 0.5% rate cut do at this juncture apart from improving moods. China reduced rates but it has proven to be of little use at this juncture for the country. Ditto for India. We do not need any mood improvement now – we have more than enough of that. What we really need to see now is all the talk getting transformed into action. Reforms need to take off and not get stalled in the Parliament. More than RBI, unless Govt spurs public investment in infrastructure, we could continue to juggle growth numbers by merely changing methods, far from the actual reality. And remember mere rate cuts are not enough - unless people start buying, these cuts remain meaningless. Sentiments are tepid now and the Govt needs to ensure this does not turn negative....