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The Hindu: NCAER lowers India GDP growth forecast to 5% in 2014-15

In its mid-year review of the economy the National Council of Applied Economic Research (NCAER) has lowered its 2014-15 growth forecast for India to 5 per cent. In July the think-tank had put out a growth forecast of 5.7 per cent. The projection of a slowdown is despite the 5.7 per-cent growth in the first quarter of the current year (April-September) after two successive years of sub-5 per cent growth.

The NCAER’s projection of slower growth during the rest of the year is in line with the Reserve Bank’s forecast.
“The NCAER is predicting a slower growth for the economy unlike other forecasts. The fundamentals of the economy remain weak with uncertainties prevailing.” the think-tank said in its mid-year review.
It said that though the weakening of inflation and the foreign direct investment inflows to be redeeming features whether they will help it revive the growth prospects will depend on factors such as the extent of damage on agriculture due to deficit rainfall. Another cause for concern according to the NCAER is that after recording a strong performance of double-digit growth in May and June export growth slowed down in subsequent months with a growth rate of just 2.73 per cent in September.
The 2014-15 farm sector growth projected at 2 per cent on account of the uneven distribution and the 17-per cent deficiency in rainfall has pulled down the mid-year gross domestic product (GDP) projection. Last year the sector had grown 4.7 per cent.
Industry is projected to grow at 2.3 per cent. Official figures had put last year’s growth at 0.4 per cent. Services which account for more than half of the GDP are projected to grow at just under 7 per cent marginally faster than in the previous year. “Manufacturing proved the biggest disappointment” the review said. The manufacturing sector growth rate contracted by (-) 1 per cent in July and (-) 1.4 per cent in August respectively.
The NCAER has also projected the Centre’s fiscal deficit at 4.3 per cent of GDP against the budget target of 4.1 per cent.

Business Standard: Mid-Year Relief

With an uncertain global outlook much work is still ahead

 

The India International Centre (IIC) in New Delhi has been organising an annual mid-year review of the Indian economy for a long time in collaboration with different research institutions each year. This year’s edition was presented by the National Council of Applied Economic Research (NCAER). This kind of stock-taking exercise had significant value in earlier years when data were published after long lags and the community of analysts was relatively small. With shorter data lags and many more analysts the economy is being assessed in virtually real time; the mid-year exercise has diminished in utility. However this has not been a normal year for some obvious reasons domestically but equally for some very important global reasons. Making a collective assessment based on all these developments certainly has value in this context. The IIC-NCAER report presents a balanced picture clearly highlighting several positives but also cautioning about looming risks and bottlenecks.

 

On the external front against a backdrop of the rollback of its unconventional monetary policy by the United States Federal Reserve and a dramatic decline in oil prices the situation for India has become quite positive. Rising expectations of the new government aggressively pursuing structural reforms and the narrowing of the current account deficit or CAD which will be sustained by lower oil prices have induced a surge in foreign portfolio investment. Both better prospects for returns and a significant reduction in currency risk have played a part in this. India’s vulnerability to the reversal of global liquidity conditions now appears rather low; foreign investors are clearly preferring it to several other emerging market economies many of which are experiencing significant slowdowns in growth. Going forward currency risks will remain muted as long as oil prices persist at current levels. This is a dramatic change from the high levels of vulnerability that a surging CAD had created over the past three years.

 

Oil prices also have very positive implications for the fiscal situation. Without lifting a finger fuel and fertiliser subsidies will shrink making it that much easier for the government to exceed its deficit target for the year even if revenue collections fall short of estimates. Of course this favourable development has been reinforced by the decision to de-regulate diesel prices and the movement towards putting an aggregate cap on liquefied petroleum gas subsidies. The government’s resolve will be tested if and when oil prices rise sharply but for the moment good luck and good policy make a powerful combination.

 

Does all of this translate into better growth prospects? The report itself is somewhat hedged in its forecast but seems to largely endorse the 5.5-6 per cent range for the current year’s growth in gross domestic product. It points out that some global forecasters have turned much more positive but perhaps caution is appropriate here; it takes a while for favourable macroeconomic conditions to translate into accelerating growth. The global economic outlook has turned bearish. This is not good news for the Indian economy. While India will benefit from lower commodity prices its exports and therefore the domestic growth that they fuel are likely to suffer. Besides many structural impediments remain one or more of which could dilute or offset the benefits of the current combination of good luck and good policy. Reassuringly the report is far more positive about declining inflation; lower oil prices will help to counter at least for a while other persistent inflationary pressures. In short the Indian economy at mid-year 2014-15 looks good but there is much work ahead.

Event Link: Malcolm Adiseshiah Mid-Year Review of the Indian Economy 2014-15

Financial Chronicle: NCAER lowers GDP growth forecast to 5% for this year

Fundamentals of economy remain weak with uncertainties prevailing

 
India’s economic recovery is still elusive according to economic think-tank NCAER which forecast a slower GDP growth this financial year unlike other forecasts including that of government.
 
 
In its mid-year review of the economy for this financial year NCAER said GDP growth would be five per cent in 2014-15 which is lower than its earlier forecast of 5.7 per cent made in July this year. It had projected a mere 5.1 per cent growth in April this year.
 
 
“NCAER is predicting a slower growth for the economy unlike other forecasts. The fundamentals of the economy remain weak with uncertainties prevailing” it said in a press statement on Monday.
 
 
“The only redeeming feature is the weakening of inflation and FDI inflows. Whether that will help us revive our growth prospects will depend on a number of factors including revival of the external economy and the extent of damage on agriculture due to deficit rainfall” it said.
 
 
NCAER forecast is much lower than other forecasts including that of World Bank and Asian Development Bank which ranged between 5.4 to 5.9 per cent this financial year. The government expected a growth pick up this financial year after two years of below 5 per cent growth the worst since the 1980s. The government projected at least 5.5 per cent growth this financial year and with slightly better performance in agriculture it could be close to 6 per cent. The NCAER mid-year review covered the performance of the economy during first half of the current year (April – September) and presented the most recent GDP forecasts made by NCAER using its quarterly and annual macro models.
 
 
Bimal Jalan former RBI governor and ex-president of NCAER and currently chairman of the government’s expenditure management commission released the NCAER Report from the 2013-14 mid-year review.
 
 
NCAER has always been looked as a ‘neutral outsider’ with an unbiased view of the Indian economy. “Overall the economy looks weak with uncertain growth prospects. The economy is giving mixed signals” it said.
 
 
On one hand “we had the Sensex reaching record levels partly driven by record foreign institutional investment and FDI. Even the NCAER business confidence index showed rise in sentiments in July 2014. This change in sentiment has been drive by the change in the political climate in the form of a ‘stable government’. Another positive sentiment has been the weakening of prices driven by downward movement of food and fuel inflation” it said.
 
 
On the other hand agricultural growth is predicted to be lower than last year as there was deficit rainfall with uneven spatial and temporal patterns. After the first quarter industrial growth has slowed down in the months of July and August with the manufacturing sector leading the downfall.
 
 
The power sector was the only redeeming feature in the economy with double-digit growth. The pace of growth shows signs of slowing down in the services sector it said. Therefore while inflation has weakened significantly and sentiments have arisen the fundamentals of the economy continue to be weak the mid-year review said.
 
 
Deficient monsoon is bound to affect agricultural output especially in rain-fed areas which account for about 55-60 per cent of the area sown. NCAER’s estimates based on its economic models anticipate a 2 per cent to 4 per cent deficit in overall kharif food. 

The Economic Times: NCAER lowers India GDP growth forecast for this year to 5%

NEW DELHI: The National Council of Applied Economic Research (NCAER) has lowered India’s GDP growth forecast to 5 per cent in the current financial year on weak economical fundamentals and uncertainties in growth prospects. 

 

The economic think-tank in its earlier projection had suggested that the Indian economy was likely to grow at 5.7 per cent in 2014-15. 

 

“NCAER is predicting a slower growth for the economy unlike other forecasts. The fundamentals of the economy remain weak with uncertainties prevail. The only redeeming feature is the weakening of inflation and FDI inflows. 

 

“Whether that will help us revive our growth prospects will depend on a number of factors including revival of the external economy and the extent of damage on agriculture due to deficit rainfall” it said in a release today. 

 

NCAER said that the overall economy is looking weak with uncertain growth prospects. 

 

“The economy is giving mixed signals. On one hand we had the Sensex reaching record levels partly driven by record foreign institutional investment and FDI.” 

 

However the business confidence index is showing rise in sentiments on the back of a stable political regime with the new government it said. 

 

Weakening of prices due to cheaper food and fuel inflation is also positive but agricultural growth is predicted to be lower than last year as there was deficit rainfall with uneven spatial and temporal patterns. 

 

“The pace of growth shows signs of slowing down in the services sector. Not surprisingly bank credit to the commercial sector has not picked pace and continues to languish.Further the slowdown in the external economy except the United States shows little growth prospects for the external sector even though exports grew in the first quarter” it said. 

 

Therefore while inflation has weakened significantly and sentiments have improved the fundamentals of the economy continue to be weak said NCAER. 

Event Link: Malcolm Adiseshiah Mid-Year Review of the Indian Economy 2014-15

Think tank NCAER sees economy slowing

The mid-year review of the economy by the National Council of Applied Economic Research (NCAER) released here on Saturday paints a sobering picture with the outlook for 2014-15 worsening from the beginning of the financial year.

 
After growing at 5.7 per cent in the first quarter the NCAER estimates the gross domestic product will grow at 5 per cent in 2014-15 down from the 5.7 per cent forecast in July implying a significant deceleration in the coming quarters.
 
But with the quarterly model forecasting growth of 6.1 per cent for the current fiscal year) it also underlines uncertainty in the economy.
 
The Baseline and Professional Forecasters’ Median Projections of the Reserve Bank of India estimates GDP growth for 2014-15 will be 5.5 per cent while the World Bank and the IMF are predicting 5.6 per cent.
 
Expectations of a slowdown are largely on account of agriculture and industry. Rainfall this year has not only been deficient at 17.1 per cent on a year-on-year basis but has also been unevenly distributed. According to the ministry of agriculture’s estimates the output of kharif grain in 2014-15 is likely to be 120 million tonnes 7 per cent lower than the previous year’s 129 million tonnes. The NCAER expects agricultural growth to slow down to 2 per cent for the entire year from 4 per cent in 2013-14.
 
Industry is expected to grow at 2.3 per cent. What is puzzling is that the improvement in business sentiment does not seem to be translating into growth. Bank credit to the commercial sector continues to remain low with the gap between deposits and credit offtake widening.
 
While bank profits have been rising this is driven partly by retail loans which suggests a rise in household demand for consumer durables. But this has not translated to investments probably because given how low capacity utilisation rates are companies can meet the demand without having to invest.
 
A troubling aspect of the past few years is the rise in the incremental capital-output ratio (ICOR). With gross fixed capital formation at roughly 30 per cent an ICOR of four should translate to GDP growth of 7-7.5 per cent. That growth has plunged to 5-odd per cent suggests either productivity has fallen or other factors are at play.
 
The services sector which accounts for over 60 per cent of the GDP is expected to grow at 6.9 per cent. Pick-up is being seen in tourism cargo handled at major ports and telephone subscribers.
 
For the current fiscal year the NCAER’s forecasts for current account deficit fiscal deficit and inflation (Wholesale Price Index) are 2.6 per cent 4.3 per cent and 4.5 per cent respectively.

 

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