If serious investment starts again in infrastructure sectors like roads and the railways, and in core sectors like coal, the construction and capital goods industries might begin to see some action, says TN Ninan.
Stock prices have taken a toss in recent weeks.
The flow of economic news also suggests that “good days” are not here as yet.
Bank credit growth is still painfully slow, corporate results for the March quarter have been disappointing, exports continue to fall, and many consumer-oriented businesses have seen laggard sales, while the real estate sector remains moribund.
The uncertainty about the monsoon has added a new element on the downside.
These are not indications of an economy in full flow, nor even of an economy that has moved into recovery phase — whatever the GDP numbers might say.
Yet, if one were to read some of the straws in the wind, the news is not all bad.
Most interestingly, indirect tax collections in April-May are up by a handsome 39 per cent. Some of this is on account of higher tax rates, but there is underlying growth as well.
The sales of medium and heavy trucks in the same two months are up by about 25 per cent, while the recovery in car sales has accelerated.
The government-owned banks’ loan books show that the picture on bad loans has stabilised and may be getting better.
Quite a few large private groups, weighed down by stressed balance sheets these past few years, have restructured debt; some have even announced new projects.
And “Make in India” would get a boost if Foxconn announces that it is moving the production of some iPhones from China to India.
So it is possible that the economy may be on the cusp of change.
In fact, the downturn in the stock market may be primarily on account of the widespread expectation that US interest rates are about to rise; several Asian markets (barring China) have seen money flowing out in recent weeks, and stock prices take a beating.
Realistically speaking, though, the news continues to be very mixed, so a real turnaround may still be over the horizon.
Even in the automobile sector, the news is mixed.
Sales numbers have been poor for tractors, motor-cycles and light commercial vehicles.
On the positive side, though, quite a few clogged investment sectors seem to be getting cleared up, even if not by as much as the concerned ministers (eager beavers to a man) like to claim.
If serious investment starts again in infrastructure sectors like roads and the railways, and in core sectors like coal, the construction and capital goods industries might begin to see some action.
It would help if interest rates came down further.
The Reserve Bank’s worry on the inflation front is understandable, given the different forecasts on the monsoon, so it has some justification for being cautious.
However, the weaknesses that are evident in the economy and the lack of serious growth momentum should have weighed in favour of a steeper interest cut than has been announced, or at least a stance that did not give the impression of ruling out any further cuts in the rest of the financial year.
Meanwhile, the encouraging development is that the government has begun to move on reform in areas where it has so far chosen to play safe.
One example is the move to liberalise the rules for hiring workers on fixed-period contracts.
The Reserve Bank has moved to help banks get the upper hand in dealings with recalcitrant corporate borrowers, by permitting the forcible conversion of loans into shares, along with change of control.
In the coming months, the government should stay focused on getting a proper goods and services tax legislation approved, on kick-starting public sector investment, and getting more foreign companies to follow in the wake of Foxconn.
If these materialise, the business mood in six or eight months should be noticeably more confident than it is today.
Photograph: Reuters
