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NCAER lowers GDP forecast to 7.4 per cent for next fiscal

Economic think tank NCAER on Saturday marginally lowered GDP forecast at 7.4 per cent because of slowdown in agriculture due to deficient monsoon.

“This marginal fall is due to the anticipated slowdown in the agriculture sector. Industrial growth continues to gather strength while the outlook for the services remains mixed” National Council of Applied Economic Research (NCAER) said in a statement.

In August it had projected economic growth at 7.5 per cent for the current fiscal.

The Finance Ministry has pegged the growth rate for the financial year 2015-16 at around 8.1-8.5 per cent which now looks difficult to achieve as the growth in the first quarter worked out to be only 7 per cent.

It further said the overall demand remains sluggish because of weak external demand and dampened rural demand while investment shows weak signs of revival.

The industrial sector performed better with 4 per cent growth in the first half of the FY16 against 2.9 per cent in the comparable period of the last fiscal it said.

The improvement is mainly driven by the manufacturing sector with 4.2 per cent growth in the first half of the 2015-16 compared to 2.2 per cent in the corresponding period of the last fiscal.

“While the mining sector showed no growth electricity has recorded slower growth in the first half of FY16 versus FY15.

Capital goods and consumer durables also show improved y-o-y growth signalling improved investment and consumption” it said.

However it said annual growth in consumer non-durables continues to be in negative territory.

With regard to agriculture sector it said the actual rainfall received during June-September period of 2015-16 was below normal.

Despite deficit rainfall it estimates overall food grain output during this year’s kharif season likely to be marginally higher compared to last year due to better rainfall conditions in areas where coarse cereals and pulses are grown it said.

On inflation NCAER said it has declined over the period of the last one and half years.

“Retail inflation declined by an average of 1.4 percentage points between 2014-15:H1 and 2015-16:H1. Wholesale Price Index (WPI) inflation fell sharply averaging 4.1 per cent (y-o-y) in the same period” it said.

GDP to grow 7.4% in FY16: NCAER

India’s gross domestic product (GDP) would grow 7.4 per cent in 2015-16 much lower than current official estimates of 8.1-8.5 per cent the National Council of Applied Economic Research said in its mid-year review of the economy on Saturday. The think-tank said: “Industrial growth continues to gather strength while the outlook for services remains mixed. Overall demand remains sluggish because of weak external demand and dampened rural demand. Investment shows weak signs of revival.” In August NCAER had forecast GDP growth for the current fiscal at 7.5 per cent.

NCAER’s projections are at par with the Reserve Bank of India (RBI)’s GDP growth estimates of 7.4% in the September monetary policy and within the range of 7.3-7.6 per cent estimated by the International Monetary Fund World Bank Moody’s Analytics and Asian Development Bank.

The official estimates of 8.1-8.5 per cent projected in the last economic survey are expected to be revised when the July-September economic growth data is available. On Saturday NCAER said while the industrial sector performed better year-over-year in the first half of the financial year the services sector was sluggish. “The services sector excluding construction shows signs of waning growth; slowing down in the first quarter of the current fiscal (on a year-on-year basis) to 8.9 per cent compared to 9.2 per cent in the quarter 4 of 2014-15” it said adding the outlook for the rest of the year looked ‘mixed’.

“For the second year in a row the actual rainfall received during June-September period of 2015-16 was below normal… Despite deficit rainfall NCAER estimates the overall food grain output during this year’s kharif season may be marginally higher compared to last year due to better rainfall conditions in areas where coarse cereals and pulses are grown” it said.

The report noted that while inflation had moderated expectations continue to be high and inflation volatility showed signs of increasing. “The RBI front-loaded a rate cut with a 50 basis point reduction in the repo rate. The rate cut is intended to create an environment conducive for boosting investment expenditure. However monetary transmission has remained weak” it added.

“Nominal demand for credit witnessed some sluggishness in growth for the first half of 2015-16. Public sector banks continue to be plagued by non-performing assets” the report stated.

The report credited the government for doing ‘largely commendable’ work on the fiscal front compared to the same period last year. On the external front however the first half of the year was not that good for merchandise exports with dull prospects for the rest of the financial year.

Call to address inverted duty structure in steel sector

The steel sector at present faces an inverted duty structure which needs to be addressed according to NITI Aayog Member VK Saraswat.

Customs duties levied on key raw materials such as coking coal iron ore and metal scrap are higher than those on the end product he said adding: “Most steel exporting countries don’t impose import duties on raw materials.”
Saraswat was speaking here on Tuesday after releasing a report of the National Council of Applied Economic Research on the reforms required for the domestic steel industry.
While the Centre has not given any indication that it believes an inverted duty structure exists in the steel sector it has provided some relief to the industry from cheaper imports. There have been two rounds of duty increase on steel imports which have raised the levy on certain categories of steel to 10 per cent.
To protect the industry from imports from countries with which India has a free trade agreement such as South Korea and Japan the Finance Ministry last month imposed a safeguard duty of 20 per cent for 200 days on flat steel products.
Saraswat said Japanese and Korean imports of steel products were 3.94 million tonnes in 2014-15 while India’s export was much lesser than 1 million tonne.
On the free trade agreements and the ongoing negotiations for the Regional Comprehensive Economic Partnership Saraswat said both NITI Aayog and the Steel Ministry have asked the Commerce Ministry to keep steel products in the negative list.
“Major strategic planning is needed for the steel sector. We have to tune our policies to make sure our domestic industry is not affected” he added.

Mineral assets: Govt’s auction-only strategy to backfire, hurt steel sector

The government’s strategy of auctioning mineral resources to ensure transparency in the allocation process would bring exploration activities in the country “to a halt” while adversely impacting the ‘Make in India’ programme the National Council of Applied Economic Research (NCAER) has said in a report. Instead the Centre must focus on incentivising mineral exploration and the ‘auction only’ system should be replaced with a mechanism that encourages mining and promises exploring firms of seamless concessions on mineral discovery the report said.

Suggesting that the system of bidding out mineral resources should be supplemented with the ‘first come first served’ (FCFS) system that is prevalent worldwide the report blamed the new auction process along with the decline in global iron ore prices for the raw material crunch in the country which is “likely to push up costs of both coal and iron ore”. “The FCFS system yields less spectacular revenues but the government needs to take a policy decision whether the goal is revenue maximisation or scientific development of the sector. Auctioning everything just to have a ‘non-discretionary’ way of allocating resources is a sub-optimal methodology that will lead to far more waste and loss than any other system” the report titled ‘Indian Steel Industry: Key Reforms for a Brighter Future’ said.

India is also losing export competitiveness due to factors like high unit cost of labour lack of capital poor logistics it added.

While fully prospected mineral deposits should be bid out the auctions should be based on sealed bids rather than e-auctions. The reserve price should be based on independent credible third party evaluations using the Valmin Code or an equivalent the report says. Valmin Code is a mechanism used by Australian geoscientists for technical assessment and valuation of mineral assets.

 NCAER study on The Indian Steel Industry: Key Reforms for a Brighter Future was released on 6 October 2015. Know more

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