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23Rd Aug 2016
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| Indian Economy (The Total Investment & Insurance Solutions) |
While
the Indian economy is in motion, growth not accelerating as expected with
private corporate investment recovery turning out to be the missing link, says
a report.
In
a report, India Ratings and Research (Ind-Ra) says, "The key factor that
is holding the acceleration of industrial growth is investment recovery.
Besides stepping up its own capital expenditure, the incumbent government has
taken several initiatives to revive private investment as also the manufacturing
sector growth in the country. However, all this has failed so far to rekindle
the animal spirit in the economy. In fact, the Business Confidence Index of
National Council of Applied Economic Research (NCAER), which had reached 148.4
in January 2015, slipped to 121.6 in April 2016. Corporates, particularly those
engaged in infrastructure, power, iron and steel and textile sectors, are
either repairing their balance sheets or saddled with stagnation or even
decline in capacity utilisation. We, therefore, expect investments to grow 5.0%
in FY17, mainly driven by the government capital expenditure." The Total Investment & Insurance Solutions
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Business Confidence Index
(The Total Investment & Insurance Solutions)
Although
the government has tried to do its bit to revive the investment cycle as can be
seen from the FY16 and FY17 budgets, unfortunately the share of state and
central government capital expenditure in the total capital expenditure in the
economy is only 16%. As the balance 84% comes from the private corporate
sector, which includes central and state public sector undertakings, Ind-Ra
says it believes government capital expenditure can play only a limited role in
reviving the capex cycle. The Total
Investment & Insurance Solutions
In
the absence of investment demand, Ind-Ra says, the key support to industrial
growth is coming from the consumption demand. Moderation in both inflation and
lending rates of banks is aiding the consumption demand in urban areas. Salary
revision of central government employees due to the award of the
recommendations of the Seventh Central Pay Commission will further aid the
urban consumption demand. Also, with favourable monsoon so far, Ind-Ra says it
expects even rural demand to recover in FY17. However, it will still not be
sufficient to drive the industrial growth higher than the 7.4% witnessed in
FY16.
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Consumption Expenditure
(The Total Investment & Insurance Solutions)
The
ratings agency says it also feels that the situation is more complex than
hitherto believed. As in the aftermath of debt-fuelled expansion both banks and
corporates are repairing their balance sheets, it has led to a virtuous cycle
whereby banks are not lending and private corporate sector is not investing.
The impaired asset ratio of the banking system is expected to inch up to 12.5%,
including assets reconstruction companies’ receipts but excluding Discom bonds,
by FY17.
"The
median debt-to-equity ratio for infrastructure, iron and steel and textiles
sectors increased to four to six times in FY15 from under two times in FY10.
Ind-Ra says its estimates suggest that 240 of the top 500 borrowers belong to
the stressed and elevated risk of refinancing categories and will remain
exposed to significant refinancing risk during FY17. Clearly, there is no easy
way out as the process of balance sheet repairing or cleaning will take time,
it added.
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| Economic Outlook (The Total Investment & Insurance Solutions) |
The
ratings agency also revised also revised its gross domestic product (GDP)
estimate for FY17 upwards to 7.8% (FY16: 7.6%) from its earlier forecast of
7.7%. It said, "The upward revision has been prompted by the progress of
monsoon and the sowing of kharif crop so far. With the
exception of East and Northeast, the rainfall in other regions of the country
has been more than long period average (LPA). Cultivated area under kharif crops
on 19 August 2016 was 5.7% higher than the normal area (average of latest
available five fiscal years). As a result, we now expect the agricultural gross
value added (GVA) to grow 3.0% yoy in FY17 compared to the 2.8% forecasted
earlier."The Total Investment & Insurance
Solutions
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