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We have revised our real GDP growth forecast for 2016-17 upwards to 6.9 per cent from six per cent projected earlier in January 2017. There has not been a single positive development since then that could change our view on the short-term growth prospects of the Indian economy. Yet, the GDP projection has been revised upwards to incorporate the third quarter official estimates released by the government last month.

We had expected GDP growth to slip to five per cent in the December 2016 quarter due to adverse effects of demonetisation. The Central Statistics Office (CSO), however, pegged the growth for the quarter much higher at seven per cent. It also revised the growth rate for the December 2015 quarter downwards from 7.2 per cent to 6.9 per cent, making the base more favourable.

The seven per cent growth in GDP in the December 2016 quarter was driven by a smart 10.1 per cent increase in private consumption expenditure. It is surprising that consumption expenditure grew at its second best rate since March 2011 despite consumers being stripped off of 86 per cent of the cash in their hands.

Anecdotal evidences and some hard statistics from non-government sources suggest that consumption demand was dented post demonetisation. The official statistics have failed to capture this due to poor coverage of unorganised sector which was the worst hit by demonetisation and the supply-side method used by the CSO for estimation of consumption demand. [see].

While we do have reservations about the accuracy of the GDP numbers released by the government, these are the only official statistics available. Hence, these need to be incorporated in the growth projections for 2016-17.

We expect January-March 2017 to be the worst quarter of 2016-17 in terms of year-on-year growth. There are many reasons to believe so;

  1. A bumper agriculture output drove the PFCE growth in the third quarter of 2016-17. This component is expected to record a lower growth in the last quarter, thus, pulling down the PFCE growth from its near record level during October-December 2016. The kharif crop that was harvested in the December 2016 quarter grew y-o-y by a strong 10.7 per cent, whereas the rabi crop which is now ready for harvesting is expected to grow by only a modest 4.3 per cent, as per the second advance estimates of the Ministry of Agriculture.
  2. Slowdown in advance tax collection growth: Advance tax collections from India’s top 100 companies during the March 2017 quarter recorded only an eight per cent rise over the year-ago level. This indicates a slowdown from the 12 per cent growth in direct tax collections recorded during the first three quarters of 2016-17.
  3. High base effect: The 7.2 per cent growth in GDP in first three quarters of 2016-17 has come after a 7.7 per cent growth in the corresponding period of 2015-16. The base for the last quarter is much higher with an 8.6 per cent growth.
  4. Widening trade deficit: Trade deficit during January-February 2017 amounted to USD 18.7 billion as compared to USD 14.2 billion a year ago. Net exports of services too declined year-on-year by 10 per cent in January 2017. Higher trade deficit eats into GDP, thus reducing its growth rate.

We expect real GDP to grow by 6.1 per cent in the March 2017 quarter. PFCE is expected to grow by 6.5 per cent, slower than the 10.1 per cent growth recorded in the preceding quarter. Government spending, measured by GFCE, will continue to grow in double-digits, while investment demand, measured by GFCF, is expected to grow by 3.7 per cent, after remaining stagnant in the March 2016 quarter.

For the fiscal year as a whole, GDP is expected to grow by 6.9 per cent. The growth would be 100 basis points lower than the growth clocked in 2015-16. This growth would be driven by high government spending and a contraction in trade deficit. Investment demand is likely to fall a tad due to low capacity utilisation and lack of interest from the private sector to add fresh capacities. Consumption demand is likely to maintain its growth rate despite adverse effects of demonetisation due to the flaws in the estimation methodology followed by the CSO.

Had it not been for these flaws, GDP statistics would have shown a more severe slowdown in growth in 2016-17.

CMIE STATISTICS
Unemployment Rate
Per cent
3.2 -0.0
Consumer Sentiments Index
Base September-December 2015
94.9 0.0
Consumer Expectations Index
Base September-December 2015
95.4 0.0
Current Economic Conditions Index
Base September-December 2015
94.1 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 16 Dec 16 Mar 17 Jun 17
New projects 2.37 1.44 2.91 1.55
Completed projects 2.21 0.94 1.81 1.02
Stalled projects 0.65 1.01 0.35 2.45
Revived projects 0.91 0.17 0.62 0.29
Implementation stalled projects 0.37 0.81 0.33 0.63
Updated on: 28 Jul 2017 12:20PM
Quarterly Financials of Listed Companies
(% change) Sep 16 Dec 16 Mar 17 Jun 17
All listed Companies
 Income 2.1 6.2 10.3 7.7
 Expenses 1.9 6.4 11.8 8.7
 Net profit 14.6 40.4 18.0 0.7
 PAT margin (%) 6.9 6.1 6.2 12.6
 Count of Cos. 4,494 4,492 4,357 320
Non-financial Companies
 Income 0.6 6.0 11.8 7.3
 Expenses -0.2 7.3 15.4 8.6
 Net profit 26.7 24.7 -0.7 -2.1
 PAT margin (%) 6.9 6.2 6.4 12.5
 Net fixed assets -9.2 7.6
 Current assets 8.1 2.4
 Current liabilities 11.6 9.3
 Borrowings 3.1 5.4
 Reserves & surplus 8.4 7.7
 Count of Cos. 3,491 3,493 3,401 232
Numbers are net of P&E
Updated on: 28 Jul 2017 9:30AM
Annual Financials of All Companies
(% change) FY13 FY14 FY15 FY16
All Companies
 Income 12.6 9.9 5.0 1.0
 Expenses 12.8 9.8 5.1 1.2
 Net profit 1.0 -2.3 1.4 -14.2
 PAT margin (%) 3.5 3.2 3.2 3.1
 Assets 14.3 12.3 9.4 8.7
 Net worth 9.6 9.6 8.8 7.6
 RONW (%) 6.8 6.2 6.1 5.4
 Count of Cos. 25,169 22,706 21,937 18,146
Non-financial Companies
 Income 11.9 9.6 4.1 0.0
 Expenses 12.2 9.3 4.3 -0.6
 Net profit -8.5 -2.7 -5.9 8.1
 PAT margin (%) 2.4 2.2 2.2 2.8
 Net fixed assets 12.9 11.6 13.2 12.6
 Net worth 7.8 8.6 7.4 6.9
 RONW (%) 5.5 5.1 4.9 5.6
 Debt / Equity (times) 1.1 1.1 1.1 1.0
 Interest cover (times) 2.1 1.9 1.9 2.1
 Net working capital cycle (days) 72 69 67 66
 Count of Cos. 19,615 18,084 17,557 14,859
Numbers are net of P&E
Updated on: 22 Jul 2017 1:04PM

Time-series available since 1992-93