 "Slowing industrial activity worries Reserve Bank")
The Reserve Bank of India (RBI) on Tuesday highlighted the slowdown in industrial activity in India - a view supported by a large section of India Inc. The main reasons for the slowdown, CEOs said, are the high interest rates, lack of orders and the global commodities crash.
According to an RBI statement issued on Tuesday, in the first two months of the December 2015 quarter, industrial activity slowed compared to the preceding quarter. Stalled projects continue to remain high, and there is a decline in new investment intentions due to low capacity utilisation, RBI noted.
"The slip-up in industrial growth, as reported in the November numbers, indicates persistence of underlying weakness and the fact that we are still away from a firm turnaround. The demand situation remains weak and the cost of funds for the industry has not really come down. Bringing down interest rates is imperative to propel investments," said Harshavardhan Neotia, president, Ficci.
Others agree. "RBI's concern over falling investments has not come as a surprise to us and we have been talking to the Indian government on this and we expect some positive changes in calendar year 2016. All eyes are now on the Budget to kick-start the economy," said the promoter of a large infrastructure company, who did not wish to be named.
The CEOs are worried as the third quarter results show only a marginal uptick in profits for the Indian companies, while there has been a five per cent fall in sales. While the corporate earnings have been slowing down for the past few quarters, factory output remains flat.
Cement companies such as UltraTech have announced a seven per cent growth in revenues and higher profits on the back of lower energy costs.
"The economy is at an inflection point. We desperately need growth in investment, capacity utilisation and job generation. For that, internal demand needs to grow. While containing inflation is important, to bring in movement in industry, the interest rate has to come down to kick-start growth in demand," said Prabal Banerjee, head of international finance at Bajaj Group.
RBI's industrial outlook survey suggests there could be a modest expansion of activity in the March 2016 quarter. In January 2016, the manufacturing Purchasing Managers' Index (PMI) expanded to a four-month high owing to resumption of output by firms affected by floods in December 2015 as well as on new domestic and export orders.
"In the policy statement, RBI has put GDP growth forecast for 2016-17 at 7.6 per cent, stating growth is below the medium-term expectation and it remains important to rekindle the underlying growth drivers. We look forward to the forthcoming Budget, which should focus on strengthening the demand conditions and reviving the domestic capex cycle," said Neotia.
RBI said indications from the services sector were mixed. According to the central bank, construction activity was still tepid, as evidenced by weak growth in cement production, while the pick-up in road construction boded well for future activity, if supported by construction in the major proposed industrial corridors.
Railway freight growth is still weak, though it might reflect lower transport needs for inputs such as coal, and competition from roadways. However, services PMI rose to a 10-month high in December 2015 on improvement in new business orders and upbeat expectations.
According to an RBI statement issued on Tuesday, in the first two months of the December 2015 quarter, industrial activity slowed compared to the preceding quarter. Stalled projects continue to remain high, and there is a decline in new investment intentions due to low capacity utilisation, RBI noted.
"The slip-up in industrial growth, as reported in the November numbers, indicates persistence of underlying weakness and the fact that we are still away from a firm turnaround. The demand situation remains weak and the cost of funds for the industry has not really come down. Bringing down interest rates is imperative to propel investments," said Harshavardhan Neotia, president, Ficci.
Others agree. "RBI's concern over falling investments has not come as a surprise to us and we have been talking to the Indian government on this and we expect some positive changes in calendar year 2016. All eyes are now on the Budget to kick-start the economy," said the promoter of a large infrastructure company, who did not wish to be named.
The CEOs are worried as the third quarter results show only a marginal uptick in profits for the Indian companies, while there has been a five per cent fall in sales. While the corporate earnings have been slowing down for the past few quarters, factory output remains flat.
Cement companies such as UltraTech have announced a seven per cent growth in revenues and higher profits on the back of lower energy costs.
"The economy is at an inflection point. We desperately need growth in investment, capacity utilisation and job generation. For that, internal demand needs to grow. While containing inflation is important, to bring in movement in industry, the interest rate has to come down to kick-start growth in demand," said Prabal Banerjee, head of international finance at Bajaj Group.
RBI's industrial outlook survey suggests there could be a modest expansion of activity in the March 2016 quarter. In January 2016, the manufacturing Purchasing Managers' Index (PMI) expanded to a four-month high owing to resumption of output by firms affected by floods in December 2015 as well as on new domestic and export orders.
"In the policy statement, RBI has put GDP growth forecast for 2016-17 at 7.6 per cent, stating growth is below the medium-term expectation and it remains important to rekindle the underlying growth drivers. We look forward to the forthcoming Budget, which should focus on strengthening the demand conditions and reviving the domestic capex cycle," said Neotia.
RBI said indications from the services sector were mixed. According to the central bank, construction activity was still tepid, as evidenced by weak growth in cement production, while the pick-up in road construction boded well for future activity, if supported by construction in the major proposed industrial corridors.
Railway freight growth is still weak, though it might reflect lower transport needs for inputs such as coal, and competition from roadways. However, services PMI rose to a 10-month high in December 2015 on improvement in new business orders and upbeat expectations.