State of the Economy Seminar February 2018

NCAER presented its Quarterly Review of the Economy, covering the performance of the Indian Economy in the third quarter of 2017-18 and forecast for the year ahead at this seminar held at NCAER. Organised as an integral part of the Quarterly Review, this seminars brought together policymakers, industry leaders and researchers for a discussion.

Key Highlights of NCAER’S Quarterly Review of the Economy

NCAER forecasts growth based on both quarterly and annual models. Based on the annual model, NCAER forecasts a growth of 6.3 per cent for 2017–18 for GVA (Gross Value Added) at basic prices, and of 6.7 per cent for the Gross Domestic Product (GDP) at market prices. These forecasts are at constant (2011–12) prices. For 2018–19, NCAER forecasts a growth of 7.5 per cent for GDP at market prices and 7.2 per cent for GVA at basic prices.

In 2017–18, the real agriculture GVA is envisaged to grow at 1.0 per cent, real industry GVA at 5.2 per cent, and real services GVA at 8.0 per cent. The Wholesale Price Index (WPI) inflation is projected at 6.4 per cent for 2017–18. The growth rates in exports and imports, in dollar terms, are estimated at 12.8 per cent and 24.8 per cent, respectively, in 2017–18. The current account balance and central fiscal deficit, as percentages of GDP, are projected at –2.0 per cent and 3.5 per cent, respectively, for 2017–18. These estimates have been revised upwards since November 2017 based on the positive outlook emanating from the leading indicators in 2017–18:Q3.

The NCAER quarterly model forecasts that Gross Value Added at Basic Prices (2011–12) will grow at 6.5 per cent in 2017–18 and at 7.2 per cent for 2018–19 on a y-o-y basis.

In the agriculture sector, despite the rainfall being below normal both during and after the monsoon, the estimated output of major crops computed by NCAER, based on area and output equations, suggests that the output of kharif foodgrains is expected to be 139.8 million tonnes to 141.2 million tonnes, signifying an increase of 1–2 per cent over last year’s output of 138.5 million tonnes. The output of rabi foodgrains is also expected to remain close to last year’s output of 137 million tonnes. The output of oilseeds in both the kharif as well as the rabi seasons is also expected to be close to last year’s output, and the situation is likely to be similar in the case of both cotton and sugarcane.

The Index of Industrial Production (IIP), a measure of industrial performance, noted a year-on-year (y-o-y) growth of 3.7 per cent during the period April–December 2017–18, versus 5.1 per cent recorded during the corresponding period in 2016–17.  However, the aggregate figure masks the recovery achieved in November and December, 2017, driven by growth in manufacturing. The outlook is, however, uncertain with both the Nikkei PMI Index and the SBI Composite Index showing relatively slower economic growth in January 2018 as compared to the two preceding months. The capital goods sector has specifically experienced steady growth since August 2017 and double-digit growth in October and November 2017, pointing to a positive sign of investment spending. The consumer non-durables sector also showed double-digit growth of 10.4 per cent in April–December 2017 versus 7.5 per cent during the corresponding period of the previous fiscal. Cumulatively the core infrastructure industries registered a growth of 4 per cent during the period April–December, 2017–18, as compared to 5.3 per cent recorded during the corresponding period the previous year.

The lead indicators from the service sectors in the third quarter suggest a positive outlook for the aviation sector, tourist arrivals, cargo traffic production of commercial vehicles, and banking credit to the commercial sector. The exports of software services showed positive growth in the first two quarters of the current fiscal. The growth in the Nikkei PMI services confirms the positive outlook.

The exports of goods, in dollar terms, show a year-on-year (y-o-y) growth of 11.8 per cent between April and January 2017–18. The y-o-y growth in January 2018 moderated to 9.1 per cent after growing at 30.1 per cent and 12.4 per cent in November and December 2017, respectively. The imports of goods in dollar terms showed a 22.2 per cent y-o-y increase during the period April–January 2017–18. Merchandise imports grew at 26.1 per cent in January 2018 on a y-o-y basis. Merchandise imports continued their growth momentum from the previous two months of November and December 2017. The merchandise trade deficit of US$88,337 million increased to US$ 131,155.5 million over the period April–January 2016–17.  Service exports showed a moderate growth of 0.2 per cent in 2017–18:Q3 while imports declined.   The Indian rupee appreciated against the dollar throughout 2017, recording an overall appreciation of 5.9 per cent between January and December 2017.

While the aggregate retail and wholesale inflation rates showed an upward trend during the period October to December 2017, there were significant differences in the month-on-month rates. There is a slight correction in the prices for January 2018 with both the CPI and WPI inflation figures recording a significant reduction from the highs they touched in December 2017. Food prices, particularly the prices of fruits and vegetables continue to be volatile, causing significant variations in inflation.

As regards the monetary space, the Reserve Bank of India maintained the status quo at its sixth bi-monthly meeting in February 2018, with the policy repo rate remaining unchanged at 6.0 per cent for the FY 2017–18. Based on the current and evolving macroeconomic situation of the economy, the RBI is expected to continue with the neutral liquidity stance in the coming months.

In the realm of public finance, the period of 2017–18:Q3 recorded one of the highest y-o-y increases in Fiscal Deficit (FD), at 129.1 per cent, and in Revenue Deficit (RD), at 143.3 per cent, over the previous eight quarters. FD and RD showed y-o-y increase of 129.1 per cent and 143.3 per cent respectively in 2017–18:Q3. A rise in the total expenditure with a lesser aggregate revenue has led to a higher fiscal deficit. The large deterioration in the revenue deficit has been mainly triggered by the 9.3 per cent quarterly increase in revenue expenditure and 7.9 per cent decline in revenue receipts on a quarterly basis.

NCAER’s quarterly report is designed to meet the needs of policy makers, corporates and others interested in tracking the latest developments in the Indian economy.

It provides an analysis of current policies and tracks developments in both the domestic as well as the global economies. The growth forecasts of NCAER are objective and are widely quoted and referred to in both the Indian as well as international media.