India's Q2 FY-25 GDP growth rate-why muted?

 India's Q2 FY25 GDP figures reveal a significant economic slowdown, falling to 5.4% year-on-year growth—a substantial drop from the projected 6.6%. This underperformance stems from a broad weakening across investment and consumption sectors. Private investment significantly lagged expectations, growing at only 5.4% compared to 7.5% in Q1, despite increased government spending. Consumer spending also weakened, declining to 6% year-on-year growth from 7.4% in Q1, primarily due to sluggish urban demand hampered by wage stagnation and elevated food prices. Export growth decelerated sharply (2.8% YoY from 8.7% in Q1), while imports contracted.

The Gross Value Added (GVA) mirrored this trend, slowing to 5.6% year-on-year. Industrial activity suffered a particularly sharp decline, with mining and manufacturing sectors experiencing contractions. However, the agricultural sector showed some positive growth. While the services sector maintained its growth momentum, high-frequency indicators pointed to persistent weakness in private consumption, especially in urban areas.

Consequently, growth forecasts have been revised downwards. The FY25 growth projection is now anticipated to be significantly lower than the initial 7.2% estimate, possibly around 6.3%, reflecting the weak first half of the fiscal year (6% YoY). While a modest improvement is expected in the second half, the FY26 forecast has also been lowered to 6.6% from the previous estimate of 6.8%. Inflation remains a key concern, with the 6.2% rate creating headwinds for potential monetary policy easing. While measures to improve liquidity may help offset tighter financial conditions, the RBI is likely to prioritize monitoring inflation trends before considering interest rate cuts.

In essence, India's economy faced a steeper-than-expected slowdown in Q2 FY25, primarily driven by weak investment of both Government and the private and the falling urban consumption. Although the agricultural sector displayed strength and government spending increased, the overall economic outlook remains cautious, highlighting the need for potential policy interventions to bolster growth and mitigate the effects of constrained liquidity.

IN the above chart we have tried to look at how GDP Annual Growth rate every quarter , Gross Fixed Capital formation and Consumer spending data have correlated.It shows high combined Consumer spending coupled with high GFC formation has always pushed up GDP growth with a lag effect of one or at the most two quarters.A weak GFC formation + Weak Consumer spending is pulling down GDP growth also with a lag effect.

So, IMHO, to push up Consumer spending, GOI should look at Fiscal push by slashing the Excise on Oil-Petrol & Diesel by atleast Rs10 since Inflation itself is a Tax and RBI should also address it through appropriate Rate and/or Liquidity decisions without any delay.Any undue delay in Rate cut can itself feed into Inflation.

"Maha" elections and its effect on India's politics!

 Maharashtra elections have come and gone.I am not going to slice and dice the election results but only look at larger picture it offers for some one looking at India's politics from a third state-Tamilnadu.

My views are personal and I do subscribe to right-wing ideology.

Ek hai tho Safe hai" is such a powerful message which I was taught in Schools by my Teachers.But if PM of the country says it becomes divisive agenda in the eyes of opposition.

Batenge to Katenge " is another slogan emphasizing that Divide and Rule policy of British Imperialism almost destroyed us and let us not repeat the history knowingly now.Those who dont learn from history are not only condemned to repeat but condemn their progeny and future generations also.

If the above two slogans mean dividing us on religious basis so be it.

When Gandhi ji said that British imposition of separate Muslim constituency would divide India was he not echoing the same sentiment of "Ek hai tho Safe hai".

When he said India should not be divided and partitioned was he not saying "Batenge tho Katenge", if not in the same words.

Rahul Gandhi said 'Bharat Jodo" , it was appreciated by the secular media but when PM Modi says "Ek hai tho Safe hai" they are reading  between the words and line! This is called the attitude of liberal media.

Women folk lured by "Ladki Bahin Yojana" have voted enmasse to Mahayuti. So some electoral pundits are saying that ladies have become the determining factor in electing the ruling parties in Indian elections-Women empowerment! Now all said and that, majority "Maha" women have identified who should rule them for the next 5 years.

People of Maha have clearly voted in favour of Stability with Growth, having understood whom to believe and trust for the next 5 years.

It is as simple as that! No right wing ideology.

https://www.amazon.in/tryprime?tag=00705fb4-21

Adani & his latest adventure!

 Adani is known for building a mega business empire in India and abroad but his adventures are far more enthralling than many fiction stories - it can rival "The Adventures of Tom Sawyer"!!

The latest salvo from US is the indictment of DOJ,New York based on FBI investigation into bribery conspiracy alleged to have been done within India involving Indian officials of the State Governments.

There are too many coincidences and red-herrings.

The indictment comes a day after Maha and Jharkhand elections happen but well before the winter session of the Parliament.

Adani has been close to Israel by taking control of its Haifa port and has warned Bangladesh about cutting off power supply if his overdue power bills are not paid.

He has made enemies with China in African & Australian projects and last but not the least, has sent a friendly X message to Trump on his win promising more investments and jobs in US.

All the above point towards conspiracy theories and plots hatched against Adani. But why Adani detractors and conspirators instead of accusing BJP Central Govt and BJP State Govts. have selectively picked up all Governments run by Congress and its alliance partners? So, either conspiracy is not there against Adani and BJP or conspiracy is against Adani and Congress-somebody missed the target?!!

Now DOJ indictment of Adani's conspiracy to bribe does not mention a single bribe taker  and the methodology used to bribe these Indian officials. Had FBI known this bribery conspiracy earlier-alleged to have taken place in 2021 &2022 mainly,  they could have legitimately asked Indian Govt to investigate on this as Principle of Comity of nations requires this since the illegal act as alleged , has taken place within India by Indian Citizens.

USA is not world's policeman to snoop on private business men like Adani ,who is a citizen of India , domiciled in India and running legitimate large businesses. Getting private emails of Adani by hacking and snooping is an illegal act done by US Agencies.

Further the US investor funds obtained by Adani was only US175 million but Adani had spent US265 million on bribes as per FBI!!!

Coming to the alleged bribe amount of US265 million to Indian officials and that too over Rs1750 cr to AP Officials alone begs the question of logic.Moreover my CA friend tells me whether any sane business man give US265 million upfront to earn US2 billion over 20 years as alleged !Time value of money in India is costlier with high interest rate in India .Probably FBI did not take into account Indian Interest rate before coming out with this ridiculously huge bribe amount. Further no names of Officials or Politicians , who are the alleged bribe takers , mentioned in the Indictment of Bribe giver!!

Too many loose ends or goof ups?.

Should Food inflation be targeted by RBI or not?- A pragmatic and nuanced approach

 When it comes to Inflation targeting by RBI, reducing the weight of food inflation(46% as per RBI) in the headline inflation in India, rather than removing it entirely, could be a more balanced and effective approach for several reasons:

1.GOI increased the import duties on edible oils in Sep/Oct 2024 inorder to raise the remunerative prices for domestic oilseeds production and thereby incentivise more Oilseeds production. This import duty increase has pushed up the Edible oil prices by design.

2.Acknowledgment of Food Price Impact: Food prices significantly influence the cost of living for households, especially those with lower incomes who spend a larger proportion of their earnings on food. By reducing rather than eliminating the weight, policymakers acknowledge the importance of food prices while recognizing their volatility.

3.Mitigating Volatility: Food prices can be subject to significant fluctuations due to seasonal changes, supply chain issues, and other factors. By decreasing their weight in the overall inflation calculation, the impact of these short-term spikes can be moderated while still reflecting their role in consumer spending.

4.Balanced Approach: A reduced weight allows for a more comprehensive view of inflation that considers core inflation trends alongside food prices. This approach can provide insights into underlying inflationary pressures without allowing temporary food price spikes to disproportionately skew inflation metrics.

5.Targeting Policy Responses: Adjusting the weight of food in the inflation tracker can help policymakers design responses that target both inflationary trends and specific concerns regarding food prices, ultimately leading to more nuanced monetary and fiscal policies.

6.Consumer Relevance: Maintaining some level of food price representation in the inflation measure keeps the metrics relevant to consumers. They are directly affected by food prices, and any inflation measurement should reflect real-world conditions.

7.Communication and Credibility: Policymakers must communicate their inflation strategies clearly. Reducing the weight, instead of removing food prices, may maintain credibility with the public, as it shows a commitment to understanding and addressing all components of inflation, including essential goods like food.

8.Flexibility for Adjustments: This approach offers flexibility for adjustments. If future data show that food prices stabilize, the weight can be re-evaluated and potentially increased, creating a responsive inflation targeting framework.

Therefore, The Balance of Convenience lies in the reduction of the weight of food inflation in the headline tracker rather than eliminating it entirely, as this approach strikes a practical balance. It allows policymakers to account for the realities of consumer spending and economic conditions while mitigating the impact of short-term volatility in food prices. This method promotes a more robust understanding of inflation dynamics, ultimately guiding more effective monetary policy.

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அஞ்சேல் துதி !

 

அஞ்சிலே ஒன்று பெற்றான்

அஞ்சனை மைந்தன் அவன் ;

அஞ்சிலே ஒன்றை மேலே வைத்தாலும்

அஞ்சா நெஞ்சம் கைகூட ,

அஞ்சாமை ஏற்றம் பெற்றிட

நெஞ்சமே என்றுமே

அஞ்சுமுக ஆஞ்சநேயனை வேண்டுகவே !!

அஞ்சு கரத்தனையும் சேர்த்து வேண்டுகவே !!

Auto Sales in October 24 , GST collections,Govt Revenue through Taxes indicate sustained growth

 Based on the October 2024 Auto Retail Report, the forecast for India's growth in the near term is positive, driven primarily by the auto sector's strong performance. Several factors contribute to this optimism:

• Robust Auto Sales: October saw significant year-on-year (YoY) and month-on-month (MoM) growth across all vehicle segments (two-wheelers, three-wheelers, passenger vehicles, tractors, and commercial vehicles). This indicates a healthy consumer demand and positive economic sentiment.October 2024 retail sales witnessed a significant growth of 32% YoY and 64% MoM . All categories reported healthy growth: 2W: +36%, 3W: +11%, PV: +32%, Trac: +3%, CV: +6% on YoY basis

• Rural Market Strength: The rural market played a crucial role in boosting sales, particularly for two-wheelers and passenger vehicles, thanks to increased Minimum Support Prices (MSP) for Rabi crops. This suggests a positive agricultural outlook and increased rural purchasing power.

• Upcoming Wedding Season: The expected 4.8 million weddings in November and December are likely to further stimulate demand for two-wheelers and passenger vehicles.

However, the report also highlights potential challenges that could temper this growth:

• High Passenger Vehicle Inventories: High dealer inventories (75-80 days) suggest potential for increased discounting and pressure on profit margins, potentially slowing growth towards the end of the year. The report urges OEMs to manage supply more effectively.

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• Commercial Vehicle Cautiousness: Although the commercial vehicle segment showed modest growth, dealers remain cautious due to factors such as sluggish construction activity and increased vehicle prices. This segment's performance might lag behind others.

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• Economic Headwinds: The report acknowledges potential economic headwinds that could affect sales momentum later in the year. Further details on these headwinds are not provided.

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Overall: The report suggests a positive, albeit cautiously optimistic, outlook for near-term growth in India. The strong performance in the auto sector, bolstered by rural demand and the upcoming wedding season, points towards continued growth. However, the high passenger vehicle inventories and ongoing challenges in the commercial vehicle segment warrant monitoring. The full picture will become clearer when FADA releases its 42-day festive period data on November 14, 2024.

Union Government Monthly Accounts Dashboard data, as of September 24, 2024:

Key Highlights:

• Strong Revenue Growth: Total receipts show a significant year-on-year (YoY) growth of 15.5%, reaching ₹1,636,974 crore. This exceeds 51% of the budgeted estimate (BE). Tax revenue contributes the largest share (49% of BE), with a YoY growth of 9%. Non-tax revenue also shows strong performance (65.5% of BE), with YoY growth of 50.9%.

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• Expenditure Management: Total expenditure stands at ₹1,494 crore, representing 43.8% of the BE, with a slight negative YoY growth of -0.4%. Revenue expenditure constitutes a large portion, while capital expenditure is also tracked. A detailed breakdown of expenditure categories (e.g., Defence, Pensions, Grants-in-Aid) is available in the document but lacks specific numerical values in this OCR.

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• Fiscal and Revenue Deficits: While both fiscal and revenue deficits are noted, the data presentation lacks clarity to definitively interpret these figures without the raw data. However, significant YoY changes are indicated, with fiscal deficit showing a significant reduction of -32.4% and revenue deficit showing a substantial decrease at -68.0%. Further review of the underlying data is needed for a complete understanding.

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• Other Notable Data Points: Non-debt capital receipts are at 0.7; There are graphs visualizing the trends of revenue and expenditure over time.

GST Collections in October has increased by 9% approx. Some may comment that it is less than nominal GDP growth rate of 10.5% budgeted.

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  Strong GST (Goods and Services Tax) collections generally indicate encouraging business conditions in India. Higher GST revenue suggests increased economic activity and higher consumer spending, as businesses are selling more goods and services, thereby generating more taxable transactions. However, it's important to consider some nuances:

  • Inflationary Effects: Increased GST collections could also be partly driven by inflation. Higher prices on goods and services lead to higher GST revenue even if the volume of sales remains constant or increases only moderately. Distinguishing between volume growth and price-driven growth is crucial for a complete understanding.

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  • Tax Compliance: Improved tax compliance can also boost GST collections. More businesses accurately reporting and paying taxes contribute to higher revenue, not necessarily reflecting a proportional increase in underlying economic activity.

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  • Other Economic Indicators: GST collections are a valuable indicator, but not the sole determinant of economic health. A comprehensive assessment requires analyzing other indicators such as GDP growth, manufacturing and services PMI, employment figures, and investment levels.

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  • Strong October PMI

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  The strong October performance of India's services PMI (Purchasing Managers' Index), exceeding expectations, supports Reuters poll forecasts for 7.0% GDP growth in the final quarter of 2024 (following 6.8% in the previous quarter).

• An October Manufacturing PMI of 57.5, exceeding September's value and remaining above the 50-point threshold indicating expansion, strongly suggests increased and sustained manufacturing growth momentum. However, it's crucial to avoid overinterpreting a single data point. While the higher PMI is positive, several factors could influence whether this momentum truly sustains:

  • Global Economic Conditions: Global demand, supply chain disruptions, and geopolitical events can significantly impact India's manufacturing sector. A downturn in global markets could dampen the positive momentum.

  • Domestic Demand: Internal factors such as consumer spending, investment levels, and government policies play a vital role. Changes in these areas could affect the sustainability of the growth.

  • Inflation and Interest Rates: High inflation and consequent interest rate hikes can curb investment and consumer spending, potentially slowing manufacturing growth. The October PMI doesn't account for future inflationary pressures or monetary policy shifts.

  • Input Costs: Increases in raw material prices, energy costs, or labor expenses could erode profitability and hamper sustained growth.

  • Other Economic Indicators: A comprehensive assessment requires considering other economic indicators beyond the manufacturing PMI. The services sector's performance, for example, also significantly affects the overall economy.

  In summary, while the Tax Revenue Collections upto Sep 24 , GST Collections in October, Auto Sales in October 24, and October PMI reading are encouraging, it's not a guarantee of sustained momentum. Continued monitoring of the manufacturing PMI,exports, personal consumption etc. along with other economic indicators and global events, is necessary for a more accurate assessment of the future trajectory of India's manufacturing sector.