How To Get The Indian Economy Back In The Growth Groove

Forbes India|January 31, 2019

How To Get The Indian Economy Back In The Growth Groove
Growth numbers are likely to stabilise in the next few quarters, but there are no signs of a sharp uptick yet
Samar SrivaStava

The retail sales numbers for December pleasantly surprised Maruti Suzuki. At 212,000 units, it was the highest monthly number in the company’s history. “I can’t comment on future months, but for December, at least, it indicated an improvement in demand,” says RC Bhargava, chairman of the country’s largest carmaker. He also pointed to swift sales in October when customers prefer to buy because of the festive season.

In fact, there are indications that Maruti was caught off guard with the increase in demand. Inventory levels at dealers are down to nine days from the usual 30. “We’ll have to restock aggressively in January,” says Bhargava, referring to what economists term as the bullwhip effect.

While it is still early days, Maruti’s numbers, which usually act as a bellwether for the auto sector, could point to a stabilizing of consumer demand. Slowing growth numbers and consumer loans that were harder to come by had dented sales for 11 months in a row in 2019. The increase, which may be the result of pent-up demand and an anticipated rise in prices due to the implementation of stricter pollution norms, point to a consumer willing to put money on the table.

As GDP growth slowed in each of the last five quarters, the questions most asked were: ‘Have we reached the bottom and how fast can growth return?’ While the longer-term verdict on whether growth numbers are structurally headed lower is not out, numbers from Maruti and commentary from consumer goods companies point to initial signs of the decline in growth numbers stabilizing. Data from disparate sources, the Index of Industrial Production, diesel sales, number of air passengers, electricity consumption and new project announcements all indicate that the worst may be behind us.

But there are few signs of India reaching the 7.3 percent growth rates it registered in the decade to 2020. The key reason: For the last seven years, the economy has been held up mainly on account of consumption spending and government expenditure. Net exports and investments have been comatose. In the absence of these, the chances of higher growth numbers are low. On January 7, the government-released figure for anticipated 2019-20 growth stood at 5 percent, up from 4.5 percent in the second quarter of the current fiscal. “We have had a standard economic slowdown and now we will have a standard economic upturn,” says Saurabh Mukherjea, founder of Marcellus Investment Managers.

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January 31, 2019