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An uneasy Indian economy
Figures of the IIP of March, 2019 have been disappointing after a gap of 21 months. These figures show the decline in both investment and consumption. A decline in recent quarters has been reported in sectors like steel, electricity, coal and cement.

Investment scenario

In the last four years, announcements of new investment projects have come down and this has decreased from Rs 9.66 lakh crore in the financial year 2019 to Rs 20.86 lakh crore in FY15. It is notable that in the financial year 2019, the share of private sector investments increased to 66%, which was 44% in FY15.

Interestingly, according to Independent Agency Projects Today, in the financial year 2019, the amount of new projects announced was Rs 17.25 lakh crore, which was Rs 12.16 lakh crore in the financial year 2018, whereas in the last two years investment projects to be announced have diminished. Significantly, most of the new investment announcements have been made in the areas of transport services like roads, railways etc.

Consumption and demand scenario

According to the key indicators, not only is the investment slowing down, but also the consumption is declining. According to SIAM data, there is also a recession in domestic sales, production and export sectors. Domestic sales of passenger vehicles declined by 2.7% in the fiscal year 2019 compared to 7.9% in the previous financial year. Meanwhile, in the year 2019, their production growth slipped to 0.1%, which was 5.8% in FY2018. Production of commercial vehicles increased to 24.2% in the financial year 2019, which was 10.2% in the financial year 2018. However, sales growth decreased to 17.6% in FY09, which was 20% in FY'2018. Automobile exports have also seen decline in the past two years.

FMCG sector has not been performing well in the last few months. Demand for consuming consumer products such as biscuits, soaps, oil has seen a decline in recent quarters. Seeing major indicators reveals a serious recession in urban and rural areas. The percentage indicators of rural and urban consumption have dropped in recent months. Urban indicators were 50 in January 2019, which decreased to 30 in February, 2019. At the same time, rural indicators were 38 in January 2019, which decreased to 25 in February, 2019.

According to the Comprehensive Leading Indicator (CLI), financial activity may come to an end in the fourth quarter of fiscal year 2019. The CLI Index is a group of 32 leading indicators, which estimates economic activity based on monthly data. Based on the year-wise performance of key indicators, the GDP growth in the fourth quarter of fiscal year 2019 can be increased from 6.1% to 6.2%. According to key indicators, the growth of Passenger Trains, Railway Traffic, Cargo Traffic, Electricity Generation and Manufacturing of Capital Goods has declined during the fourth quarter of fiscal year 2019.

Impact of MSP on Food Inflation

After the announcement of the Minimum Support Price (MSP), prices of almost all crops except for mustard and Niger seed have been increased from 3.6% to 37.7%, but its effect on food inflation has been low. With the decline in retail inflation for the past few months, it has come to light that despite the increase in MSP, rural demand is not rising. Statistics published by NAFED show that half of the quantities of the approved grains have not been procured at the declared MSP rates, which has not led to boom in food inflation in many states.

NBFCs struggling with financial crisis

After the drowning of some major NBFCs, NBFCs are facing financial crisis since the second half of the financial year 2019, because they have very little of their own capital. They run their business from borrowing. Due to the decline credit from Banks & other financial institutions in the last few months, they have to face difficulty in getting credit. In the second half of the financial year 2019, the investment of mutual funds has decreased. It decreased from 11.31% in July, 2018 to 7.70% in February, 2019. However, after a slight increase in March 2019, it went up 8.13%, amounting to Rs 1.06 lakh crore.

Maturity profile and increasing spread

In March 2019, mutual fund holdings in NBFC paper revealed that in the first quarter of the financial year 2020, more than 50% of the mutual funds amount, which is Rs 1.08 lakh crore, will become mature. It is worth mentioning that spread is increasing from 10th September, 2018 in 10 year old Sovereign Paper and Triple "AAA" rated corporate bonds. This was 76 bps in August, which rose to 133 bps in February, 2019. After calculating the three-year sovereign paper, this spread became 177 BPS in March 2019, which was 73 BPS in August, 2018. However, the first quarter of April, 2019 has started to soften the spread, as NBFCs of Rs 1 lakh crore are going to mature.

Decrease in Mutual Fund Investment Flow

Mutual funds are also seeing a decrease in investment flows. Quarterly growth under asset under management (AUM), which was 35% in June 2017, decreased to 3.2% in March 2019. Monthly figures of mutual funds show that the outflow has increased in the months of February, 2019 and March, 2019. However, the net inward flow of the mutual fund became positive in April 2019.

Trend of corporate results

Only 46 companies out of 384 companies have registered better growth. Over 330 companies have registered negative growth at the top, middle and lower levels. The initial trends of the results show that most companies can register a negative growth. These may include areas such as telecommunication, pharma, automobile and mining.

Question on the data

According to the Corporate Affairs Ministry (MCA-21) the contribution of all the registered companies is in the GDP calculation. Since shell companies are also registered in the Ministry of Corporate Affairs, therefore GDP data is being questioned. All types of transactions done by companies, whether they are legitimate or illegal, are part of GDP estimates. Therefore, shell companies can become a factor in the change in GDP figures. Here, there is a huge difference between the figures released by independent agencies such as CMIE and Projects Today. For example, as per CMIE estimates, government investment is less than 7 trillion rupees if we compare to Projects Today.


In the fourth quarter of fiscal year 2019, there is a decline in the areas of telecommunication equipment, infra services, agricultural chemicals, petrochemicals, infrastructure developer etc.  In the fourth quarter of fiscal year 2019, 330 companies out of 384 companies registered negative growth in mid-line and bottom-line. Rural income is low because of the low cost of rural products, which is not increasing the demand for various products.

In such a situation, there is a negative impact on the FMCG sector. Due to the presence of shell companies in the data of Corporate Affairs Ministry (MCA-21), GDP figures are being expressed doubt as the legal or illegal transactions of any company are made the basis of GDP estimates. Here, there has been a big difference in the data of independent agencies present in the country, such as CMIE and Projects Today.

Performance in domestic sales, production and export in the automobile sector is not good. In recent months, the economic activities in the urban and rural areas have seen sluggishness, in which the first was fast moving. Interestingly, despite the increase in the minimum support price (MSP) in food inflation and retail inflation, there has not been an increase. Non-banking financial companies (NBFCs) run their business from borrowing. Their own capital is low. For the time being, this area is struggling with the financial liquidity crisis. In the mutual fund industry, there is a decline in investment flows. However, there has been some acceleration in credit growth after the slowdown in the financial year 2017, but this increase was due to loans given to government and corporate customers.

In nutshell, it can be said that there is an atmosphere of sluggishness in the present period. If appropriate policies are made, there can be positive changes in the situation, as the current investment flow is low because of higher interest rates. In fact, there is a need to cut policy rates by more than 0.25 percent in upcoming monetary review. However, even with a large reduction, the situation will not improve completely. For this the Reserve Bank will also have to adopt some other measures.

About the author: Satish Singh is currently working as Chief Manager in State Bank of India's Economic Research Department, Corporate Centre, Mumbai, and has been writing mainly on financial and banking topics for the last 10 years.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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