Time to tend the green shoots

The rough start our economy had this year is now beginning to even out as we move closer to the end of the fiscal year.

The statistical data bytes in recent period have brought in a sense of optimism and we are now hopeful of achieving at least 5 per cent growth for this fiscal. This is also corroborated by FICCI’s most recent Economic Outlook Survey.

Agri-driven growth The latest GDP numbers show a moderate rise in growth to 4.8 per cent in Q2 FY14 from the 4.4 per cent growth recorded in Q1 FY14. This improvement has come primarily from the agricultural sector, which witnessed a growth of 4.6 per cent — the highest recorded in the last eight quarters.

Major crops such as foodgrains, pulses, coarse cereals and oil seeds have witnessed an increase in production due to good monsoon. The kharif season has been good, and the rabi season is expected to see a similar trend.

In fact, statistical analysis shows that the growth of agriculture GDP is generally high in the third quarter in the periods of good monsoon. So we can indeed expect a much higher agricultural growth in Q3 FY14. For the overall fiscal year, we expect agriculture growth to be around 4.0 per cent.

The Ministry of Agriculture expects total foodgrain production to reach 259 million tonnes this fiscal with kharif output at 130.5 million tonnes and rabi output at 128.5 million tonnes.

Another major contributor to GDP growth has been exports that grew by 16.3 per cent in Q2 FY14, supported by improved demand in the global markets and increased competitiveness due to rupee depreciation. Sectors such as textiles, leather, petroleum products, chemicals, metals and agricultural commodities have seen robust growth in exports.

Textile exporters have been one of the biggest gainers, having recorded year-on-year exports growth of 22.4 per cent in the first six months of FY14.

Readymade Garment (RMG) exports too have seen strong growth, with cotton RMG growing by 14.8 per cent year-on-year and man-made fibre RMG growing by 31.2 per cent year-on-year during April-September 2013.

Leather goods exports in the first half of the fiscal have grown by 24.4 per cent year-on-year and leather footwear exports have risen by 23 per cent year-on-year.

Good agricultural produce this year has led to high exports growth for a wide variety of agricultural products such as basmati rice (56.8 per cent), Non-basmati rice (39.9 per cent), Fresh vegetables (44.6 per cent), marine products (53.7 per cent), meat and preparations (56.5 per cent), pulses (126.9 per cent), other cereals (23.3 per cent), dairy products (191 per cent), and wheat (58.2 per cent).

Double-digit growth in exports in Q2 FY14 combined with a sharp fall in imports, especially gold imports, has led to significant contraction in trade deficit for Q2 FY14. Additionally, net services exports have recorded a growth of 12.5 per cent in Q2 FY14 led by exports of software and IT-enabled services (ITES). This has helped the current account deficit (CAD) to narrow to just 1.2 per cent of GDP for Q2 FY14. Though capital inflows in the form of FIIs and FDI have been slow, the RBI’s action of opening a special concession window for deposits by non-resident Indians and overseas foreign currency borrowings by banks has mobilised inflows worth $34 billion from September to November.

This may ease the worries related to financing of the CAD, but slowing FDI and FII inflows are a matter of concern that can be addressed only if the government actively pursues reform-oriented policies aimed at higher economic growth. The depreciation of the rupee has not only helped our exports but also spurred growth of some domestic industries, as there has been a rising trend of localisation in the wake of costlier imports. The industries that have gained are largely intermediate products that are serving as effective substitutes for imported inputs, such as polymers, auto-components, metal, and power equipment. The net sales growth of Indian polymer industry has been 36 per cent, 42 per cent and 53 per cent for the quarters ending March 2013, June 2013 and September 2013 as against minus 4 per cent, 9.4 per cent and 12 per cent growth in corresponding quarters of 2012.

Clearances factor Another turnaround story has been of the electricity sector, which recorded 7.7 per cent growth in Q2 FY14, as against 3.7 per cent in Q1 FY14 and 3.2 per cent in Q2 FY13.

While good monsoon has contributed towards the growth of the power sector, the real impact has come from the project clearances by the Cabinet Committee on Investments, as almost 90 per cent of the projects cleared by CCI are in the power sector. Till date, CCI is reported to have cleared 209 projects worth Rs 3.8 lakh crore.

Clearances for mega projects have also moderately improved the overall investment scenario, as reflected in the growth in gross fixed capital formation by 2.6 per cent for Q2 FY14, against a deceleration of 1.2 per cent in the previous quarter. However, we need to see greater investments in the manufacturing sector, which has shown no real signs of recovery. The fast track procedures adopted by CCI should now be extended to projects across all other sectors as well. The CCI should target completing clearances for all project applications --- reported to be around 340 projects worth Rs 16.5 lakh crore.

Furthermore, acceleration of industrial investments requires availability of capital at affordable rates. High lending rates have been cited as one of the major concerns of Indian firms in successive rounds of FICCI’s Business Confidence Survey. The tighter monetary stance adopted by the RBI thus needs a relook, as this position has not been able to rein in inflation. FICCI has repeatedly said that supply side bottlenecks need to be addressed. A pro-growth stance needs to be adopted and an enabling environment created for banks to bring down the lending rates.

Tax reforms While the above mentioned green shoots are suggestive of a higher-than-expected growth, we should target getting back to the 8-9 per cent growth trajectory. The government should not lose sight of economic reforms in the areas of taxation and administrative procedures. GST alone has the potential to raise our GDP growth by more than 2 percentage points.

The pace of infrastructure development should be speeded up and more projects such as DMIC and NIMZ need to be developed across the country to bring in efficiency in supply chains across industries and sectors. We need to make our country investor-friendly, not just to attract foreign investment but also to encourage entrepreneurship.

Bringing greater clarity in policies, transparency in rules and procedures and better implementation and enforcement of legislation would remove barricades in the path of the country’s progress. We cannot forget that constructive efforts towards higher growth would ensure greater jobs, improved standards of living and greater empowerment for the citizens of our country.

The author is President, Federation of Indian Chambers of Commerce and Industry (FICCI)

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