Indian economy in reverse gear

by Manasi Swamy

India’s real GDP declined y-o-y by 23.9 per cent in the quarter ended June 2020, reversing the economy back to its 2014 quarterly level of less than Rs.27 trillion.

Investment demand took the biggest beating from Covid-19 and the nation-wide lockdown announced to arrest its spread. Gross fixed capital formation (GFCF) slumped by 47.5 per cent year-on-year in the June 2020 quarter. Construction activity remained virtually absent in April due to government restrictions. And even today, after removal of most restrictions, it remains far from its pre-Covid-19 level due to labour shortages, slump in demand for both, residential and commercial real estate, and re-assessment of capex plans by corporates in light of weakened aggregate demand.

Key inputs in construction cement production and finished steel consumption reported a 38.3 per cent and 52.8 per cent fall, respectively, in the June 2020 quarter. Their double-digit contraction got extended into July. Findings of CMIE’s CapEx service reveal that industrial & infrastructural project completions shrank to Rs.192 billion in the June 2020 quarter from an average of Rs.1.5 trillion per quarter in the last two years, which itself was a period of slowdown. Corporates and government announced new projects worth only Rs.706 billion in the June 2020 quarter, as compared to an average quarterly announcement of Rs.3.5 trillion in 2018-19 and 2019-20. The extreme sluggishness in capex activity continued in July and August, with project completions remaining subdued at Rs.262 billion and fresh announcements sedate at Rs.516 billion. This, along with statements from large corporates such Tata group of companies, Baja Auto, Maruti Suzuki, Apollo Tyres, Hero MotoCorp, Honda Motorcycle and Scooter India, Mahindra CIE, Adani Ports, Grasim Industries, Godrej Consumer Products and Britannia about deferral of their capex plans suggest that the economy has a long way to go before it gains its investment appetite back.

Valuables, which mainly comprise of investment in gold, almost halved from their year-ago level during April-June 2020.

Consumption demand, depicted by private final consumption expenditure (PFCE), plummeted by 26.7 per cent in the June 2020 quarter compared to the corresponding year-ago period. In absolute terms, consumption expenditure, at Rs.14.6 trillion, was the lowest since September 2014.

Job losses and salary cuts, along with rising prices of essentials took a toll on the purchasing power of Indian househods. Over 85 million people lost their jobs between March 2020 and June 2020, according to CMIE’s Consumer Pyramids Household Survey. Reduced requirement for goods and services during the lockdown, along with weakening of consumer sentiments due to uncertainty and financial risks arising out of the pandemic made households go slow on consumption. They preferred to save more than spend. This is evident from the fact that outstanding term deposits with scheduled commercial banks increased by Rs.3.5 trillion during the June 2020 quarter, whereas their personal loans portfolio shrank by Rs.633 billion.

Government, both central and states, stepped up their aggregate spending by 16.4 per cent during April-June 2020. But, this fiscal push was too small to make up for the fall in private consumption and investment demand.

The slump in aggregate demand had its repercussions on performance of both, the industrial and the services sector. Gross value addition by the manufacturing sector dropped by 39.3 per cent in the June 2020 quarter and that by mining and construction declined by 23.3 per cent and 50.3 per cent, respectively. Electricity being an essential commodity managed to arrest its fall at 7.1 per cent.

Among services, GVA of trade, hotels, transport & communication declined the most, by 47 per cent in the June 2020 quarter compared to a year-ago. Public administration, defence & other services shrank by 10.3 per cent, while financial services, real estate and professional services managed to mitigate its GVA fall at 5.3 per cent, owing to an impressive profit performance by the banking sector. Profits before provisions and taxes (PBPT) of listed banks grew by 26.8 per cent in the June 2020 quarter, while most non-finance services saw their operating profits shrink.

Agriculture was the only segment of the Indian economy that grew during the June 2020 quarter. Agricultural GVA rose by 3.4 per cent owing to a bumper rabi output and record grain procurement by the government. A large part of rural India relies on agriculture for its main source of income. Still, good performance of agriculture could not save overall consumption demand from a double-digit contraction.

The Indian economy reported a steep contraction in external trade in the June 2020 quarter. Exports fell by 19.8 per cent and imports declined by 40.4 per cent. The steeper fall in imports than exports suggests that the domestic demand in Indian took a harder beating than overseas. This probably explains why India has witnessed the steepest GDP contraction among G-20 countries in the June 2020 quarter. Nonetheless, the silver lining was that India’s trade balance turned positive in the June 2020 quarter and contributed 2.8 per cent to its GDP, instead of shaving off a part of the GDP that it traditionally does.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.0 -0.8
Consumer Sentiments Index
Base September-December 2015
46.5 -0.4
Consumer Expectations Index
Base September-December 2015
48.7 -0.6
Current Economic Conditions Index
Base September-December 2015
43.0 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Sep 19 Dec 19 Mar 20 Jun 20
New projects 3.25 5.55 3.91 0.68
Completed projects 0.84 1.66 1.73 0.24
Stalled projects 0.41 0.61 0.76 0.11
Revived projects 0.43 0.83 0.42 0.59
Implementation stalled projects 0.91 0.13 9.76 0.08
Updated on: 24 Sep 2020 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 19 Dec 19 Mar 20 Jun 20
All listed Companies
 Income -2.3 -1.7 -4.9 -28.1
 Expenses -3.1 -2.2 -1.8 -28.4
 Net profit -1.3 -10.8 -47.4 -41.1
 PAT margin (%) 5.3 5.1 2.4 5.3
 Count of Cos. 4,452 4,431 4,244 4,112
Non-financial Companies
 Income -6.3 -5.5 -8.9 -38.4
 Expenses -6.7 -6.4 -4.9 -38.4
 Net profit -13.8 -13.8 -48.4 -60.2
 PAT margin (%) 5.7 5.7 3.4 4.2
 Net fixed assets 10.4 12.9
 Current assets 4.9 3.0
 Current liabilities 5.0 4.8
 Borrowings 8.3 14.7
 Reserves & surplus 5.7 2.1
 Count of Cos. 3,328 3,307 3,198 3,098
Numbers are net of P&E
Updated on: 24 Sep 2020 8:28PM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.4 1.2
 Expenses 9.9 13.6 1.6
 Net profit -40.3 21.9 -12.3
 PAT margin (%) 2.0 2.4 5.1
 Assets 10.9 9.3 9.9
 Net worth 7.5 8.6 6.8
 RONW (%) 3.5 4.3 7.2
 Count of Cos. 27,531 26,568 2,842
Non-financial Companies
 Income 8.7 13.9 -2.3
 Expenses 8.8 14.0 -1.6
 Net profit -9.0 25.0 -19.7
 PAT margin (%) 2.7 3.2 5.8
 Net fixed assets 7.1 5.3 16.0
 Net worth 6.1 8.6 3.9
 RONW (%) 5.7 6.9 9.6
 Debt / Equity (times) 1.0 1.0 0.7
 Interest cover (times) 2.1 2.4 3.6
 Net working capital cycle (days) 77 70 47
 Count of Cos. 22,401 21,603 2,134
Numbers are net of P&E
Updated on: 20 Sep 2020 8:59PM