Recession or not, fresh economic data paints gloomy picture
There are some cautious positive predictions for a growth-oriented world in 2020. The Black Rock Investment Institute says: “We see an inflection point in global economic growth as easier financial conditions start filtering through.” But in India, join the dots of tepid consumption data and inflation, and what emerges is not a very pretty picture. Worse, there is no light at the end of the tunnel.
Consumption of energy is a powerful indicator of the state of an economy. India’s power demand fell for the fourth straight month in November, plummeting 4.3 per cent to 94.6 billion units compared to 98.84 billion units a year ago in November 2018, according to data released by the Central Electricity Authority (CEA).
In October, this year, the fall was 13.2 per cent showing worsening industrial slowdown. Lower electricity consumption is seen as signs of existing industrial units cutting back on production, as well as new manufacturing units not coming up.
POWER, AUTO DOWN
Government spokespersons have interpreted the fall in electricity consumption as signs of an early onset of winter and unseasonal rains, which they say has reduced air-conditioning usage. The fact is industrial consumption accounts for over 40 per cent electricity purchase, while air-conditioning in residences and commercial establishments uses just 25 per cent.
Indeed, there is a manufacturing slowdown was confirmed by factory output data released a few days ago. It shows output contracted to negative -3.8 per cent for October, as compared to a rise of 8.4 per cent for in October 2018. In September, factory output was also negative -4.3 per cent. Mining and power generation is where the contraction was more pronounced.
Auto sales, another barometer of consumer behaviour, showed that after a brief surge during the festival period, sales of passenger vehicles, trucks, motorcycles and scooters have all gone down. November saw overall sales plunging about 12 per cent to 17.9 lakh units from 20.38 lakh units sold during November 2018. The largest segment of passenger car sales dropped 10.8 per cent to a little over 16 lakh units.
A recent Fitch Ratings report forecasts that the slowdown is likely to continue into the next year, and maybe longer as buying cars becomes more expensive with the higher level BS-VI emission norms kicking in from April 1, 2020. Homebuying, another important indicator of consumer confidence, continues in the doldrums too, despite concerted and focused government intervention to provide boosters.
More specifically, the Centre launched an alternative investment fund of Rs 25,000 crore for last-mile funding to bail out stalled housing projects; and first-time homebuyers got additional tax deductions on the interest component of home loans below Rs 45 lakh.
Reliable home-buying data is difficult to come by, but one report by a realty broking house, Anarock, estimates overall growth was around just four per cent with total sales inching up for the current calendar year to 2.58 lakh units, from 2.48 lakh units last year.
FOOD INFLATION
One would have thought that poor demand would push prices across the board southwards. Consumer food price inflation has touched 10.01 per cent year-on-year for November, signalling double-digit inflation for the first time since December 2013. The data also indicates that after a fairly flat low-level inflation for the last few years, there has been a rapid increase of food inflation pressure in recent months — from 2.99 per cent in August, to 5.11 per cent in September, then 7.89 per cent in October, and finally 10.01 per cent in November.
Food inflation is no more a debate among economists in conference halls; it has become street talk and the subject of jokes and memes with onion prices rising 400 per cent over the last three months to `200 a kg. The sharp inflationary pressure has also been fuelled by vegetables, which have shot up 36 per cent and pulses 14 per cent. These are the result of short-term shortages generated because of the late onset of the south-west monsoon and destruction by unseasonal rains in October and November.
However, these will have more long-term impact as households hunker down on family budgets. Food accounts for 50-60 per cent of household spends for a majority of the population; and with people having to now spend more on this basic necessity, it will rule out any major revival of demand in the near future.
There has been some desperate fire-fighting by the government on the perception front. Finance Minister Nirmala Sitharaman, on November 27 in her defense in the Rajya Sabha, acknowledged that economic growth had indeed come down, but she asserted that it was not recession yet, and it would not be a recession ever.
Ironically, two days later Gross Domestic Product (GDP) figures for the July-September quarter were released showing yet another fall — the seventh consecutive drop — in the growth estimates to 4.5 per cent from five per cent in the earlier quarter. The finance minister may be technically right that we are not into recession since the recession is formally defined as three consecutive months of contraction of GDP. We are still technically ‘growing’; but that provides little consolation to those struggling to make ends meet.
Food inflation in double digits after six years 10.01%
Y-o-y inflation has been recorded in consumer food prices, signalling double-digit inflation for the first time since December 2013. After a fairly flat low-level of inflation for the last few years, there has been a rapid increase in food inflation50-60% of income is spent on food in households for a majority of the population and with people having to spend more on this, it will rule out any revival in demand