1. It’s time to wait and watch before making any prediction

It’s time to wait and watch before making any prediction

The days to come would unfold the real picture and efficacy of the measure in eradicating the barriers that make it difficult to reduce poverty and inequality

By: | Published: December 6, 2016 6:16 AM

This is becoming a difficult phase for all those who have been operating from a comfort zone to predict and forecast what is in store for their relevant sectors in the coming days. As various wish lists are pouring from different quarters on the movement of Indian economy in the aftermath of one of the most spectacular decisions taken by the government in the last 7 decades, it is quite risky to base our prediction on what has happened so far and extrapolate the same for the coming months. Amidst the near consensus on the laudable objective of the demonetisation move, the large group that is critical on the pains inflicted on the common man by the terse decision of 8th November must reflect on the fact that innumerable measures preceded by emotional speeches by our predecessors to destroy the evil spectre of black money have all resulted in little impact to clear the scourge and India has been gradually moving up in the ranking of a corrupt economy in the world.

The common man has been deprived of their basic rights of earning a proper livelihood and greasing the palm of greedy agents in every walks of our life has been institutionalised as salient feature of all transactions. A drastic step was needed, something totally out of the box and sudden, to preclude any defensive actions by those for whom it is targeted. The coming days would unfold the real picture, the efficacy of the measure in eradicating this single barrier to reduce poverty and inequality. This may be the last chance to fulfill the most ambitious dream of our Constitution.

Meanwhile CSO has released Q2 GVA/GDP data with GDP derived from GVA. It has attempted to bifurcate in each sector the roles played by organised listed companies and unorganised units. The organised sectoral trend captured by BSE/NSE data on GVAs has been combined with IIP data in the specific sector like manufacturing.

In mining sector, IIP data on coal, crude oil and natural gas along with IIP in mining has been taken into account. The breakup of organised sector and unorganised and tiny sector in manufacturing into 70 and 22%, respectively shows that GVA in manufacturing has grown by 8.1% in H1 of FY17 as compared to 8.2% in corresponding period last year.

Last year’s data has been extrapolated by deflating corporate sector estimates with appropriate price indices.

IIP data for HI in FY17 indicates a paltry growth of (-) 0.8% in manufacturing against GVA growth of 8.1%. Has the rise in prices of finished manufactured items grown so appreciably during the period to compensate the poor growth in output in the sector? The GVA growth also implies that costs of input materials have either been stagnant or their rise has been fully met by increase in finished products’ prices.

One may tend to wonder which indicator (GVA or Output) best summarises the impact on demand for steel.

The wider the gap between GVA and physical output in manufacturing, the positive impact on steel demand is likely to be minimal. The current scenario is no exception. Another critical element in the exercise is growth in Gross Fixed Capital Formation that largely influences the GVA in various sectors. It is seen that GFCF (at 2011-12 prices) had a slow progress in H1 in current fiscal by coming down to (-) 4.4% growth from 8.4% achieved in last year. As a result its share in GDP at market prices has fallen from 32.8% in H1 of last year to 29.3% in the current year. This is worrisome and has to be reversed to influence the fate of steel industry.

The other important aspect is declining steel intensity in GFCF over the past few years. Industrial GFCF has given way to rise in GFCF in tertiary sector components like trade, hotel, financial and professional services, public administration, defence, communication and broadcasting and other non-commodity segments.

The GFCF in construction, machinery and equipments is likely to receive a big push with the spate of big investment earmarked in infrastructure building in the country. The ongoing projects in DFC, industrial corridors, metro rail, civil aviation, ports, Sagarmala have the potential to raise the share of GFCF in GDP.

However, enhancing steel intensity in all these investments requires a country wide awareness campaign in favour of steel based construction.

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