INDIA the Economic Scenario
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` ` 2/2018 INDIA Contact: Rajesh Nath, Managing Director Please Note: Jamly John, General Manager Telephone: +91 33 40602364 1 crore = 10 000 000 Fax: +91 33 2321 7073 1 lakh = 100 000 E-mail: [email protected] 1 Euro = Rs.78 The Economic Scenario Economic Growth Despite moderation in factory output growth in March, India's GDP is expected to grow by 7.7% in January-March, up from 7.2% in the preceding quarter. Despite the moderation in March, industrial production growth averaged 6.2% in the January-March period, up from 5.9% in Q4 (October- December). The uptick in average industrial production growth, implies that the overall industrial activity strengthened in Q1 (January-March), supporting the view of a pick-up in GDP growth to 7.7% year-on- year in Q1 from 7.2% in Q4. India is expected to witness cyclical recovery led by both investment and consumption. However, factors like rising oil prices as well as tighter financial conditions are expected to drag down growth rates. According to official data, industrial output growth fell to a five-month low of 4.4% in March due to decline in capital goods production and deceleration in mining activity and power generation. Industrial growth as measured by the Index of Industrial Production (IIP) in 2017-18 too decelerated to 4.3% from 4.6% in the previous fiscal. The country's foreign exchange reserves hit a life-time high of € 348 ($424.361) billion after rising by € 1.50 ($1.828) billion in the week to end of March, helped by rise in foreign currency assets. In the previous week, the reserves had increased by € 0.98 ($1.197) billion to € 346 ($422.532) billion. Previously, the reserves had touched a record high of € 346 ($421.914) billion in February. It had crossed the € 328 ($400) billion mark for the first time in the week to September, 2017, but has since been fluctuating. In the reporting week, the foreign currency assets, a major component of the overall reserves, rose by € 1.49 ($1.823) billion to € 327 ($399.118) billion. VDMA-Newsletter “India”, Edition 2/2018 Contact: Oliver Wack, Telephone: +49 69 6603-1444 2 Indian Economic and Industrial Scenario, 2/2018 VDMA INDIA Office Expressed in the US dollar terms, the foreign currency assets include the effect of appreciation or depreciation of the non-US currencies such as the euro, the pound and the yen held in the reserves. Gold reserves remained unchanged at € 18 ($21.614) billion. The special drawing rights with the International Monetary Fund rose by € 1.7 ($2.1) million to $1.544 billion. The country's reserve position with the IMF also increased by € 2.29 ($2.8) million to € 1.7 ($2.083) billion. Revival in rural demand, increased infrastructure spending is likely to drive India's growth in current year, even as increasing debt and trade protectionism could pose a challenge. As per forecasts, a faster than expected growth for Indian economy against the backdrop of increasing crude oil prices and volatile market conditions. The improvement in domestic conditions is a positive sign that growth is picking up and will continue to maintain strong momentum in 2018, retaining India's position as the 'fastest growing large economy' in the world. Showing signs of recovery, the Indian economy recorded a five-quarter high growth of 7.2% in the October-December period on good showing by key sectors like agriculture, construction and manufacturing. The economy is expected to grow at 6.6% in the current fiscal ending March, as per official estimates, compared to 7.1% in 2016-17. After a year of disruptions and growth slowdown, Indian economy is consolidating the gains from the recent reforms and is moving in the right direction. With a steady increase in FDI inflows and pick-up in growth in the Q3 of 2017, 2018 will expectedly remain a period of strong growth for India with a growth rate of around 6.8 - 6.9%. The negative effect of major reforms like GST and demonetisation is wearing off now as there is high optimism in domestic demand in the form of consumption and revival in small scale business activities, resulting in an increase in FDI flows into the country. Moreover, the government has made huge strides towards financial inclusion and pushing the expansion of digital India. India is steadily moving towards greater formalisation of the informal economy. With eye on infrastructure development, the government has given green light to an Rs 7 trillion infrastructure program in late 2017, with the aim to pave more than 80,000 km of road by March 2022. The global economic growth is likely to move up further as more than 75% of the world economy is now enjoying an upswing, with forecasts anticipating global growth to rise to 3.6% in 2017 and 3.7% in 2018, from 3.2% in 2016. As the global economy is in its heights after recovering from the shocks of 2008 crisis, India should take the benefit of this opportunity. India's ability to stave off the economic gales was helped by the fact that it is much less dependent than most countries on global flows of trade and capital. And therefore, the recovery in global economic conditions should help India boost its domestic growth. With regard to challenges facing the Asian region, there is a build-up of debt from the post-2008 financial crisis period of excess global liquidity. Besides, the spread of global protectionist sentiment is a concern for the Asian economies. The Reserve Bank switched back to the gross domestic product (GDP)-based measure to offer its growth estimates from the gross value added (GVA) methodology, citing global best practices. Government had started analysing growth estimates using GVA methodology from January 2015 and had also changed the base year to 2018 from January. While GVA gives a picture of the state of economic activity from the producers' side or supply side, the GDP model gives the picture from the consumers' side or demand perspective. In the first bi-monthly policy of the new fiscal year 2018-19 wherein it left the key rates unchanged at 6% citing rising inflation worries in the first half, as per RBI GDP is projected to strengthen from 6.6% in FY18 to 7.4% in FY19-- with the economy clipping at 7.3-7.4% in H1 and at 7.3-7.6% in H2 with risks evenly balanced. VDMA-Newsletter “India”, Edition 2/2018 Contact: Oliver Wack, Telephone: +49 69 6603-1444 3 Indian Economic and Industrial Scenario, 2/2018 VDMA INDIA Office Industry Scenario Infrastructure Ahmedabad to Mumbai in 2 hours, 70 bullet trips every day The National High Speed Railway Corporation Limited has decided to initiate the procedure to acquire railway land between the old and new Sabarmati stations, for the bullet train station. The bullet train station will be elevated and situated between the current old and new Sabarmati stations. Officials said the bullet train will originate and terminate at the Sabarmati station with Kalupur being the second station in Ahmedabad. NHSRC officials said the journey time between Mumbai (Bandra-Kurla Complex) and Sabarmati will be 2.07 hours for a fast train and 2.58 hours for a train stopping at all twelve stations en route. During peak hours — 7am to 10am and 5pm to 9pm — there will be three trains every hour, or a train every 20 minutes. Two trains will depart at off-peak hours. Passenger capacity will initially be 750 per train and it will be increased to 1,250 later. Railways plans to lower cost of goods transport Transporting goods by train may get cheaper, with the railways planning to offer special rates for bulk consumers who will give the national transporter assured freight traffic on advance payment. In return, the railways will offer a 5-10% reduction in base charges, fixed prices over the financial year and preferential allotment of rakes. Power plants that use coal, among other bulk users, can benefit from this scheme. The planned incentives will effectively lower transportation costs for commodities such as coal, steel, cement, fertilisers, food grain and automobiles. NTPC, the country’s biggest power generator, is set to be the first customer of this special offering. The state-owned corporation will pay € 641 million (Rs 5,000 crore) to the railways as advance freight charges for the next financial year. In return, NTPC will get a 10% reduction in freight charges, fixed rates and availability of rakes throughout the year. Airbus looks to increase composite sourcing from India Airbus is actively looking at increasing its sourcing of composites—the most critical material that goes into making aircraft lighter and more fuel efficient—from India.The suppliers being looked at include the Adani Group which is actively setting up capabilities in this segment. Airbus has a total of 46 suppliers in India. It’s sourcing from India last year totalled over $550 million. Sourcing of composites will significantly increase this number. The Adani Group has formed a joint venture with an Israeli company called Elbit Systems on unmanned aerial systems (UAS) or drones called the Hermes 900. Adani Defemce & Aerospace is now setting up a facility in Mundra, Gujarat to make carbon composite aerostructures. Making of composites will also be Adani's latest initative as part of its planned foray into aviation. The conglomerate's private airport in Mundra is one of the first to see a commencement of commercial flights under the government's regional connectivity scheme called UDAN (Ude Desh ka Aam Nagrik), which loosely translates to "Let the common man fly".