Q2FY17 GDP - NO RELEVANCE IN CURRENT POST DEMONETIZATION ERA

By Ruma Dubey

Frankly, everything is today BD and AD – Before Demonetization and After demonetization. At least in the immediate future, the AD era will be much different from BD. Thus today’s GDP for June to September has no connection whatsoever with the GDP that will come in Q3 and Q4 – the GDP of BD will be much different from GDP of AD and actually less relevant today.

This year we finally had monsoon in most parts of India and if there had been no demonetization, it could have actually been a power packed fiscal but now, despite monsoon and good harvest, there is no money in the hands of people and demand has taken a beating. The growth rate is sure to take a hit, most certainly in Q3 and Q4 of FY17. Foreign funds and mutual funds have all brought down the GDP estimate for FY17, with one research house going down to as low as 3.5%, which seems ludicrous. But the bottomline is that GDP in current fiscal is sure to get affected, will most certainly come much below 7%and supposedly, the fastest growing economy of the world, will have to take a hit. After all, as Modi said, we all have to make sacrifices.

With this perspective in mind, today’s GDP number is unlikely to bring much cheer to the markets tomorrow. The Q2FY17 GDP came in at 7.3% v/s 7.6% (YoY) and 7.1% (QoQ), much lower than what many had expected.

Agri growth came in much better at 3.3%. According to the information furnished by the Department of Agriculture and Cooperation (DAC), which has been used in compiling the estimate of GVA from agriculture in Q2 of 2016-17, the production of food grains during the Kharif season of agriculture year 2016-17 was 8.9 percent as compared to decline of 3.2 percent during the same period in 2015-16. Around 51.0 percent of GVA of this sector is based on the livestock products, forestry and fisheries, which registered a combined growth of around 3.6percent in Q2 of 2016-17.

Quarterly GVA at basic prices for Q2 of 2016-17 from ‘mining and quarrying’ sector declined by (-) 1.5 percent as compared to growth of 5.0 percent in Q2 of 2015-16.As per the available information, private corporate sector growth in the mining sector as estimated for major listed companies at current prices is (-)1.1 percent in Q2 of 2016-17. The key indicators of mining sector, namely, production of coal, crude oil , natural gas and IIP mining registered growth rates of -3.5 per cent, -3.3 percent, -2.8 percent and -2.7 percent respectively during Q2 of 2016-17 as compared to 0.9 percent, 1.7 percent, 0.03 percent and 3.1 percent respectively in Q2 of 2015-16.

Quarterly GVA at basic prices for Q2 of 2016-17 from ‘manufacturing’ sector grew by 7.1 percent as compared to growth of 9.2 percent in Q2 of 2015-16. The private corporate sector growth (which has a share of over 70 percent in the manufacturing sector) as estimated from available data of listed companies with BSE and NSE is 11.9 percent at current prices during Q2 of 2016-17. The growth in quasi - corporate and unorganized segment (which includes individual proprietorships and partnerships and khadi & village Industries has a share of around 22 percent in the manufacturing sector) has been estimated using IIP of manufacturing. IIP manufacturing registered growth rate of (-) 0.9 percent during Q2 of 2016-17 as compared to 4.7 percent in Q2 of 2015-16.

As we said earlier, it will be all about AD era which will now matter. Q3 growth rates will be hit, which is the truth but what we do not know yet is how much growth will be affected.

For now, let us wait for the RBI Policy on 7^th Dec and get the rate cut as widely expected; with banks more than flush with funds, that would be the most logical thing to expect.