National Council of Applied Economic Research
NCAER presented its 2018-19 Mid-Year Review of Indian economy at an event held at the India International Centre, IIC. This event goes back to a long-standing partnership with IIC, which is attended by policymakers, industry leaders and researchers every year.
NCAER forecasts Gross Domestic Product (GDP) growth of 7.4–7.7 per cent for 2018–19 at market prices, depending on the movement of the crude oil prices. The forecast for Gross Value Added (GVA) at Basic Prices is 7.0–7.4 per cent. These forecasts at constant (2011–12) prices are based on NCAER’s annual GDP macro model. These estimates, which have been revised upwards from August 2018, incorporate the GDP estimates from the first quarter and the unexpected decline in crude oil prices in November 2018.
Real agriculture GVA is forecast to grow at 3.0 per cent, real industry GVA at 7.0 per cent, and real services GVA at 8.6 per cent in 2018–19. The growth rates in exports and imports, in dollar terms, are estimated at 11.8 per cent and 16.9 per cent, respectively, in 2018–19. The current account balance and central fiscal deficit, as percentages of GDP, are projected at –2.3 per cent and 3.2 per cent, respectively, for 2018–19.
In the agricultural sector, in view of the relatively normal southwest monsoon during the year, NCAER estimates suggest that the combined output of kharif and rabi foodgrains during the current year may be about 290 million tonnes, which is slightly higher than last year’s record output. Likewise, the output of oilseeds is also expected to be about 33 million tonnes, which is marginally above last year’s output. Due to the record agricultural output in 2017–18 and normal expectations for 2018–19, the overall food inflation has so far remained subdued in the current financial year.
The Index of Industrial Production (IIP), a measure of industrial performance, shows a year-on-year (y-o-y) growth of 5.2 per cent during the period April–September 2018–19, versus 2.6 per cent during the corresponding period in 2017–18. The two major components of IIP by economic activities, that is, manufacturing and electricity, show an increasing trend in production while the corresponding figures for the mining sector have dipped a little. The outlook for the Indian industrial sector remains mixed.
In the services sector, the first quarter of the current fiscal witnessed growth only in financial, real estate and professional services. The remaining components of services GDP either stagnated or registered lower growth. The lead indicators from the service sectors point to a mixed outlook with subdued growth. The y-o-y growth of tourist arrivals dipped to 3.0 per cent during the first half of the current fiscal as compared to the higher growth of 13.0 per cent achieved in the second half of the last fiscal. Banking indicators improved with regard to the half-yearly outlook. The growth in aggregate deposits improved to a y-o-y growth of 7.6 per cent in 2018–19: H1 as compared to an over 6.2 per cent rise observed in 2017–18: H2. The y-o-y growth of bank credit to the commercial sector also deteriorated marginally to 11.6 per cent in 2018–19: H1, as compared to an 11.8 per cent rise in 2017–18: H2. The production of commercial vehicles improved significantly to touch a 49.8 per cent y-o-y growth in 2018–19: H1, as compared to a much lower corresponding growth of 25.4 per cent in 2018–19: H2 on a y-o-y basis. The cumulative addition in total telephones deteriorated to –1.7 per cent in August 2018, as compared to a one per cent rise achieved in end-March 2018. The growth in cargo handled at major ports improved to 5.1 per cent in 2018–19: H1 as against a higher decline of –12.7 per cent recorded in 2017–18: H2. The revenue-earning goods traffic by the Indian Railways improved by 5.4 per cent during 2018–19: H1 as compared to a 4.5 per cent rise achieved in 2017–18: H2. The growth in total aviation passenger traffic declined to 16.3 per cent in 2018–19: H1 versus an 18.3 per cent increase registered in 2017–18: H1. Similarly, the y-o-y growth of cargo traffic also decelerated in the first half of the current fiscal. The y-o-y growth of international cargo traffic dipped to 4.6 per cent in 2018-19: H1 as compared to higher rise of 12.4 per cent observed in 2017-18: H1.
On the external front, the mid-year review of 2018–19 indicates that total exports grew at the rate of 17.4 per cent in US$ terms while total imports surged at a rate of 19.41 per cent on a y-o-y basis. In the first half of FY 2018–19, that is, April–September 2018, merchandise exports accelerated at 12.5 per cent whereas imports escalated at a higher rate of 16.2 per cent. Consequently, the trade deficit expanded at the rate of 23 per cent on a y-o-y basis. The services sector displayed a trade surplus that increased at the rate of 13.2 per cent during the period April–August in FY 2018–19 as compared to the corresponding period in FY 201–18. The depreciation of the rupee against the dollar, which occurred at the rate of 2.3 per cent in the last quarter of 2017–18, also extended to the first half of FY 2018–19 but the depreciation rate rose significantly to 10 per cent between April and September 2018.
After showing an uptick in the last quarter, almost all inflation metrics exhibited a decreasing trend. This was largely due to the deflationary trend exhibited in food prices. Inflation is expected to fall further in the next quarter due to moderating fuel prices.
The Monetary Policy Committee (MPC) held the policy repo rate steady at 6.5 per cent during the fourth bi-monthly meeting in October 2018. Earlier, the MPC had increased the repo rate in two consecutive bi-monthly meetings during the first half of 2018–19 in an effort to tame inflation and pre-empt any sharp rupee depreciation that could result from tariff disputes stemming from escalation of the global trade war. While the Reserve Bank of India (RBI) maintained status quo on the policy repo rate, it ruled out any rate cut in the future by changing its stance from ‘neutral’ to ‘calibrated tightening’. The softening of headline CPI inflation in October 2018 and slump in global crude oil prices along with the pullback of the rupee in November 2018, reduce the chance of a rate hike at the RBI’s bi-monthly monetary policy meeting to be held on December 5, 2018.
On the fiscal front, the total revenue collection experienced a negative y-o-y growth in 2018–19: Q2 as compared to a manifold increase in the total expenditure over the corresponding period during the previous year. The components of direct tax, that is, income tax and corporate tax collection, showed —positive and persistent y-o-y growth. However, there was a decline in the indirect tax collection on both a quarterly as well as a y-o-y basis. Custom duties recorded positive growth whereas Goods and Services (GST) collections declined by 13.1 per cent on y-o-y basis in 2018–19: Q2. The contribution of GST in the total revenue collection declined from 58.2 per cent in 2018–19: Q1 to 40.9 per cent in 2018–19: Q2. The capital expenditure to total expenditure ratio, however, showed an improvement at 12.7 per cent. The fiscal deficit up to 2018–19: Q2 touched 95.27 per cent of its budgeted figure. On the other hand, the revenue deficit and primary deficit overshot the budgeted values. All the deficit indicators—FD, RD and PD— recorded a high y-o-y growth.
In addition to an independent stocktaking of the Indian economy’s performance, this year’s Mid-Year Review by NCAER included a special presentation on ‘Gender and Macroeconomy’. Dr Lekha Chakraborty, Associate Professor, National Institute of Public Finance and Policy, delivered a lecture on ways of integrating gender perspectives into macroeconomic policies. She pointed to the need to assess innovative statistics like time use for highlighting the statistical invisibility of the care economy and integrating it into national income accounts, by extending the production boundary as per SNA 1993. She also highlighted the need for incorporating the (0-6) child sex ratio as one of the criteria in the tax devolution formula by the 15th Finance Commission. She emphasised the importance of generating gender disaggregated data, by citing the example of policy in Sweden which, by an Ordinance, has made it mandatory to present the gender disaggregated data in macroeconomic statistics.
The Mid-Year Review of the Indian Economy was started at the India International Centre (IIC) in 1976 by Dr Malcolm S. Adiseshiah, one of India’s most distinguished economists and educationists, Life Trustee of IIC, recipient of the Padma Bhushan, founder of the Madras Institute of Development Studies, and one of the key architects of UNESCO’s work on education and technical assistance. Now conducted in collaboration with the Malcolm and Elizabeth Adiseshiah Trust, Chennai, the Review has been presented by many distinguished Indian economists since Dr Adiseshiah’ s passing away and remains an apex event on IIC’s programme schedule.