Q3 GDP growth

 Q3 FY23 GDP growth estimates released on 28th Feb 2023 mentions 4.4% growth as against 5.4% GDP growth estimated during Q3 of FY 22.With estimate of about 4 to 4.5% growth in Q4, the full year FY 23 GDP growth will be around RBI's GDP growth estimate of 6.8%.The nominal GDP growth for the full year FY23 will be around 15.9%

Q2 FY 22 GDP growth is now estimated at 6.3%.

The most important datapoint in these estimates is the revision of GDP growth of Pandemic years.

The cumulative average real GDP growth during FY19-20 to FY 22-23 is now estimated better at 3.2% as against the potential real GDP growth of 7% of Indian economy.

Since the GDP estimates of the previous years have been revised upwards, the base effect has impacted the current year GDP growth estimates.

The most worrying aspect of Q3 of FY 23 is the contraction of manufacturing output at -1.1%.

Private consumption which contributes about 60% of Indian GDP has also languished at 2.1% in Q3 FY23.

Again Statistics reg. IIP and Consumption Spending Survey are not reliable and they are constantly under revision upwards now.MOSPI has an important task on hand for strengthening data collection for estimating IIP and Consumer Spending and making them robust.

With unabated inflation estimated at around 6% for the FY 23 ,which is the upper tolerance level of RBI, the monetary policy will have to continue with elevated borrowing costs. Such high borrowing costs dampen Private Consumption further feeding into a vicious cycle of lower GDP growth.

Government will have to be mindful of its high fiscal deficit which is also fuelling inflation to some extent.But Government is banking on Capex expenditure to crowd in Private Investment which will counter balance the inflation through higher production efficiencies.Govt should also look at fiscal incentives apart from PLI, to bring in Private Capex through Investment allowance and accelerated Depreciation schemes for the short term covering the next couple of years.

With dark clouds of high interest rates and liquidity tightening looming all over the globe ,GOI has extremely difficult task cut out for itself  inorder to maintain high GDP growth of 6%+ in FY 24.

Union Budget musings!

 Only unbridled Govt borrowings can crowd out Private investment.FS Somanathan clearly articulated in the post budget press conference that Nominal GDP growth will b 10.5% and incremental Govt Borrowings will grow only 8% or less & therefore, not a problem. As rightly said, Govt Capex will have multiplier effects and will crowd in Private investments.

Capex is 3.2% of GDP which  means about 55% of Fiscal Deficit of 5.9% will be used for Capex.That will have huge impact on job creation and other multiplier ripples across the Economy. Capital expenditure is estimated to be Rs 10,00,961 crore (37.4% increase over FY22-23).  The increase in capital expenditure is due to an increase in capital outlay on transport (including railways, roads and bridges, and inland water transport) by Rs 1,28,863 crore (36.1% increase)

Revenue deficit in 2023-24 is targeted at 2.9% of GDP, which is lower than the revised estimate of 4.1% in 2022-23(original BE for FY 22-23 was 3.8%).  Fiscal deficit in 2023-24 is targeted at 5.9% of GDP, lower than the revised estimate of 6.4% of GDP in 2022-23.  While the revised estimate as a percentage of GDP is the same as the budget estimate, in nominal terms, fiscal deficit would be higher by Rs 94,123 crore (increase of 5.7%) in 2022-23.  Interest expenditure at Rs 10,79,971 crore is estimated to be 41% of revenue receipts.The target for primary deficit (which is fiscal deficit excluding interest payments) in BE 2023-24 is 2.3% of GDP as against 3% in RE for FY 22-23(BE was 2.8%).

All the trajectories of deficits are on a downward trend since the end of pandemic and rightly so in tandem with Monetary tightening happening under Monetary Policy of RBI.But the downside is growth may get hampered may be after a long of 4to 6 months when Global headwinds are also expected to hit the demand in the Indian Economy.

Therefore front loading of Capex by GOI is the right strategy to keep up the demand momentum in the domestic economy. By the time Global slowdown or recession starts gnawing at our economy, RBI may have to tweek its Monetary Policy accordingly to shore up the sentiments.

In all probability, this situation has to be watched out for during second half of FY 23-24 as things stand and if El Nino plays out leading to deficient monsoon little earlier also.

Govt should keep an eye on Pvt Sector Capex growth minus the PLI scheme and also focus on MSME Investment growth. If possible, MSME and Pvt sector outside PLI scheme should be supported by increasing Depreciation rates for the next couple of years as an adhoc measure.

This will be mostly revenue neutral since any loss through higher depcn rates will be offset through tax revenue from higher economic activity.

Adani saga and my personal views.

IMHO,before adversely or favorably commenting on any business group on SocialMedia, all shd make disclaimers that they have not profited from their exposure directly or indirectly thro MFs etc w.r.t that Group of Cos.!!!

How do you say crony capitalism in India, when the biggest loss making Public Sector enterprise Air India was sold to Tatas?or becoz Marxist Communist party ruling Kerala wants Adani to complete the port project in Kerala?or becoz Mamata has givena project to Adani in west Bengal?

Even though I agree that alleged stock manipulation &violations accusations  are against Adani and not on India, but why #Hindenberg report says India's capital markets r in broken state and that journalists r murdered or imprisoned for writing against country's businessmen. Is it not attack on India? See below

H report saying this with a judgmental tone and spreading fake info as if India has slid on civilized capitalist culture has not gone down well with many neutral observers H report also screams this alleged Adani scam is  "Biggest con in history". Had Hindenberg brought out a report after 2 months of research against FTX crypto Sam Bankman Fried before his ponzi scheme collapsed I would have appreciated the title "biggest con in history" as appropriate since this real scam happened right under Hindenburg's nose in USA ! Yet, Nobody is questioning why Hindenburg wants to short sell Adani shares and why their motive to profiteer thro this report is not questioned?

I have a strong suspicion that the profits from this short selling could round trip back to India for funding General elections expenses of Opposition in India.

Sebi in its wisdom can bring in Additional Surveillance Measures probably when PE ratios of particular co.shares,exceed threshold limits ,similar to the one it brings in when share prices crash leading to excess volatility

This is only good news as this confirms he has repaid US$1.1 billion loan- whether due to Margin call or not.Nobody has denied his repayment of loan.Only if had evaded and had taken flight to UK,you can accuse him.Don't ridicule if someone repays or prepays his loan.

 Adani's financial problems are only pertaining to Overleveraging where Debt to EBITDA ratio is more than 3 and his Debt Service Coverage Ratio is less than 3. As per Rating Agencies and Banks there are no Short Term Cash problems as Major Loans are maturing only in late 2024 or in 2025.

Road for reviving Capex investment in Pvt sector

 Indian think-tank at the top in GOI has brought out the PLI Production Linked Incentive Schemes to

attract investments into India which can push up our Exports and also provide jobs to the locals.This twin objectives of Value add and Job add have remained Work-in-Progress and the full benefits would start flowing into the economy in about 3-5 years time.

Nevertheless the Capex appetitie beyond this ambitious scheme has remained largely muted mainly because of reasons like lack of demand momentum going forward.higher interest rates and large Govt borrowings programme as this is penultimate year before General elections.

In this scenario, one of the important avenues open to the Govt is looking at Investment allowance and Depreciation rates.Earlier it has been demonstrated that whenever the IA and Depreciation rates are increased for a limited period, there has been a pickup in Capex investments inorder to save on Corporate Taxes. But now the Tax rates have already been lowered and so it is a moot point whether any increase in IA and Depreciation rates will work.

However the past experiences are a guide for us to peep into future. Despite lower Tax rates if our India Inc. sees some avenue to save today's tax which can also partially offset raise in cost of funds then there will be appetite to take the bait.

Depreciation and IA rates may be doubled with a sunset clause at the end of two financial years can help many corporates to front load their Capex investments. Govt need not have to forego by way of tax since what Govt may give up by way of higher taxes may in part come back from Capex manufacturing companies. With the overall buoyancy in the economy on an even keel, the tax revenues will get a legup in both Direct and Indirect Tax-GST..

India's GDP growth rate for Fiscal 2024 may dip.

 India's nominal GDP growth for Q2 FY 22-23 is estimated by National Statistical Office (NSO) of MOSPI  at16.2% and the real GDP Growth rate at 6.3%.

From the Govt side we notice that Fiscal deficits are still lose compared to what it was before the pandemic hit us. The combined fiscal deficits of Centre and States is more than 10% in FY 21-22 (RBI report Appendix-Table 1)link ; PIB release on Fiscal Deficit( link)

For the current FY 22-23 it will be slightly less than 10% as per BE.

The RBI repo rate has gone up so far by 2.25%p.a so far since May 22 in five tranches ,pushing up all the lending rates of the Banks.

Combined with the rate hikes RBI has also sucked up excess liquidity in the system through CRR and other monetary policy instruments like VRRR, and other Open Market Operations like Operation Twist etc.

With a slightly higher than FRBM mandated Fiscal Deficit at the Centre and a high FD combined with States crowd out private investments due to excessive Govt borrowings.Added to this is liquidity tightening and increase in Bank rates and this is a heady concoction for the Indian Economy.

The result could be faltering growth rate in the short to medium term upto 1/2 years.

Last year India witnessed greater traction in the economic growth due to pent-up demand in both the domestic economy as well as in global trade.The buoyancy in the economy in the last year was mainly due to this favourable scenario where Domestic sales as well as Exports grew in double digits.The price line of commodities played a spoiler impacting the profits. But current year is witnessing severe contraction in Exports and the support is only from domestic economy so far.However when we peep into the next financial year we see lot of headwinds coming up due to the above tightening of fiscal and monetary policies which may dampen Domestic economic demand also.

Inflation is moderating but all depends on the Crude Oil price scenario going forward in the International market which in turn depends on evolving  Russia-Ukraine war scenario.Inflation expectations and RBI hikes in  tandem have an unintended consequence of hurting personal savings and consumption behaviours which in turn will affect domestic demand in the future with a lag even upto 6/8 months.

Considering all this, India's GDP Growth rate may slightly dip down in FY 23-24 and the likely scenario is 5.5-6% growth.

The bigger point to be looked at is whether Modi Govt can afford a slow down in Indian economic growth rate when it is entering the year of Parliament elections which will be fought in May 2024. Therefore in all likelihood the Fiscal deficit consolidation will be given a short shrift in the Budget this year.

 

Potholes on the Roads and their costs to our Economy.

 

All State govt should have Pot and Man holes maintenance minister. Economic costs and loss of human lives due to road accidents especially that of Breadwinners of the family are humongous. Govts should take-up modern tech of repairing potholes in a jiffy as National Priority.

Maintenance &repair of our roads, often ignored ,lead to huge loss of priceless lives ,&deprive the nation of productivity of youth who fall victim to potholes and otherwise bad roads.

"Road accident victims largely constitute young people in the productive age underscoring major implication on economic cost of road accidents, apart from their emotional and psychological impact.(Page 62 of Report on Road Accidents in India-2021 by Ministry of Road Transport and Highways

Table 4.2: Age profile of Fatal Road Accident victims during 2019 to 2021

 

Age-group	Number of Persons killed			%-age change in 2020 over 2019	%-age change in 2021 over 2020
	2019	2020	2021
Less than 18	11,168	6,998	7,764	-37.3	10.9
% Share in total	7.4	5.3	5.0
18-25	33,206	27,612	31,750	-16.8	15.0
% Share in total	22.0	21.0	20.6
25-35	39,023	34,947	39,646	-10.4	13.4
% Share in total	25.8	26.5	25.7
35-45	32,509	29,379	32,741	-9.6	11.4
% Share in total	21.5	22.3	21.3
45-60	22,612	20,938	26,085	-7.4	24.6
% Share in total	15.0	15.9	16.9
Above 60	9,004	8,380	11,739	-6.9	40.1
% Share in total	6.0	6.4	7.6
Age not known	3,591	3,460	4,247	-3.6	22.7
% Share in total	2.4	2.6	2.8
Total	1,51,113	1,31,714	1,53,972	-12.8	16.9

In this regard, GOI should look at options like including Maintenance & Repair of Roads using Modern Technologies by our Public Limited Companies under Corporate Social Responsibility under Cos Act. and encourage  especially Automotive Companies to involve themselves more in this Road Maintenance and Repair of Potholes

Companies can take up Repair of Roads in and around their Offices, Factories, Warehouses etc. wherever it is possible by entering into suitable PPP Agreements with the respective Govt agencies including Panchayats, Municipalities, Corporations etc.

"Potholes account for nearly 0.8 percent road accidents, 1.4 percent of road accident deaths and 0.6 percent of injuries."as per Report "Road Accidents in India -2021 " published by Ministry of Road Transport and Highways(Page 95)

Continued from previous page in the Report there is a table giving Potholes causing No. of Accidents ,Fatalities and Injuries in 2021 :(page 96)

Road feature	Number of accidents	Persons killed	Persons injured
Potholes	511	213	338
Share in Total	0.8	1.4	0.6
Steep Grade	908	219	725
Share in Total	1.3	1.4	1.2
Ongoing Road Works/ Under Construction	1,886	639	1334
Share in Total	2.8	4.2	2.3
Others	11,482	2,037	10,778
Share in Total	17.1	13.3	18.3
Total Million Plus cities	67,301	15,350	58,758

In the below table you find Accidents due to Potholes in Million Plus cities in India in 2021.

To your utter surprise you will find that Mumbai, Chennai,Coimbatore, Faridabad, Pune, Aurangabad, Kochi etc. have recorded Zero Accidents , Deaths, Injuries due to potholes!!!

What a farce!This data has to be immediately updated by Ministry on war footing pl.

Ministry should also do the maths on Economic costs of Accidents and Fatalities etc and look at reducing them as a % of our GDP.

S. No	State/UT	Pot Holes
		Number of Accidents	Persons Killed	Persons Injured
				Greviously Injured	Minor Injury	Total Injured
1	2	25	26	27	28	29
1	Agra	6	1	4	6	10
2	Ahmedabad	1	1	0	0	0
3	Allahabad(Prayagraj)	149	74	36	47	83
4	Amritsar	0	0	0	0	0
5	Asansol Durgapur	5	5	1	0	1
6	Aurangabad	0	0	0	0	0
7	Bengaluru	15	4	9	3	12
8	Bhopal	0	0	0	0	0
9	Chandigarh	0	0	0	0	0
10	Coimbatore	0	0	0	0	0
11	Chennai	0	0	0	0	0
12	Delhi	56	9	5	63	68
13	Dhanbad	11	9	2	3	5
14	Faridabad	0	0	0	0	0
15	Ghaziabad	0	0	0	0	0
16	Gwalior	0	0	0	0	0
17	Hyderabad	19	1	1	17	18
18	Indore	0	0	0	0	0
19	Jabalpur	90	46	15	13	28
20	Jaipur	1	0	0	0	0
21	Jamshedpur	0	0	0	0	0
22	Jodhpur	0	0	0	0	0
23	Kannur	0	0	0	0	0
24	Kanpur	6	3	3	1	4
25	Khozikode	0	0	0	0	0
26	Kochi	0	0	0	0	0
27	Kolkata	14	2	10	3	13
28	Kollam	0	0	0	0	0
29	Kota	0	0	0	0	0
30	Lucknow	50	15	22	15	37
31	Ludhiana	0	0	0	0	0
32	Madurai	20	4	12	3	15
33	Mallapuram	0	0	0	0	0
34	Meerut	13	5	0	8	8
35	Mumbai	0	0	0	0	0
36	Nagpur	0	0	0	0	0
37	Nashik	0	0	0	0	0
38	Patna	0	0	0	0	0
39	Pune	0	0	0	0	0
40	Raipur	0	0	0	0	0
41	Rajkot	0	0	0	0	0
42	Srinagar	0	0	0	0	0
43	Surat	0	0	0	0	0
44	Thiruvanthapuram	0	0	0	0	0
45	Thrissur	8	1	6	4	10
46	Tiruchirapalli	0	0	0	0	0
47	Vadodra	0	0	0	0	0
48	Varanasi	47	33	11	15	26
49	Vijaywada city	0	0	0	0	0
50	Vizaq	0	0	0	0	0
Total		511	213	137	201	338