Vijay Kumar Gaba

 The statistics for economic growth during 2QFY21; consumption, investment, exports and financial indicators etc. for the month of October were announced last week. The data has been received very enthusiastically. The general commentary is that the growth is “surprising”, and the recovery is much quicker and superior that previously estimated. The “buoyant” data and further encouraging news on vaccine development & launch kept the momentum in the stock market busy yesterday.

Since, most of the “surprised” reports are basing their arguments on the “Pre-Covid” and “Consensus Estimate” benchmarks; I find it pertinent to note the data with the usual year on year comparison.

1.    The production in eight core industries has contracted for eight consecutive months. In October 2020, the index of core industries fell by 2.5% compared to October 2020. It is important to note that in the base month October 2019, index had also contracted 5.5%.

While coal, fertiliser, cement and electricity recorded positive growth, crude oil, natural gas, refinery products and steel registered negative growth in the month of October 2020.

During April-October 2020, the index of core industries has now declined 13% as compared to a growth of 0.3% in the same period of the previous year.

2.    After witnessing an uptick in the overall export segment in the month of September, India's exports faltered back into the negative territory, contracting by 5.12% YoY in October.

The worrisome part however is that India has lagged its peers materially in exports growth in past many months. Comparative data of export growth on a three-month moving average basis showed that Vietnam, China and Taiwan have seen the strongest revival, followed by Bangladesh. India and Indonesia have lagged.

3.    India’s GDP contracted for second consecutive quarter on year on year basis. In 2QFY21 India’s GDP contracted 7.5% as compared to the same period in previous year. It is relevant to note that NSO has admitted data availability limitation and recognized a possibility of downward revisions to the GDP data for 2QFY21.

Nominal GDP contracted 4% on account of higher inflation in the quarter. Overall, H1FY21 GDP stands at -15.7%, worse than most of our peers.

I find the standalone growth statistics, independent of “pre-covid” and “consensus estimate” benchmarks, not very encouraging. Though one can certainly draw comfort from the fact that we may not deteriorate materially from the current level of economic activity. But we must recognize that the latest statistics implies two things:

 

2.    The potential growth rate for India’s economy which was bordering 9.5-10% a decade ago, may itself have fallen to 7-8% in these two years. Remember, even this “less contraction: is happening on the back of massively negative interest rates.

 

The increase in value of equity portfolio in recent days is causing more discomfort to me rather than giving any satisfaction. For all practical purposes I am discounting my portfolio by 20%.