Opinion Express View on RBI studies: Carrying hope

Two RBI studies suggest that economic momentum is sustaining

National Statistical Office, NSSO data, India GDP growth, GDP growth estimates, RBI, Indian economy, indian express news

Another study by economists at the central bank, which looks at investment intentions financed through various sources, provides some indications.

By: Editorial

August 19, 2023 08:00 AM IST First published on: Aug 19, 2023 at 07:15 AM IST

At the end of this month, the National Statistical Office will release the GDP growth estimates for the first quarter (April-June) of the ongoing financial year. As per the most recent estimate by the RBI, the economy is likely to have grown at 8 per cent during this period. In the period thereafter, the economic momentum (on a quarter-on-quarter basis) is likely to have remained healthy even as the global recovery is slowing down as per the State Of The Economy report by economists at the RBI.

The report states that while the contraction in exports will drag down growth — merchandise exports declined by around 16 per cent in July, falling to a nine month low $32.25 billion — growth in private consumption and investment activity is expected to offset that. These are encouraging signs.

The study examines a range of high-frequency indicators for whom data is available for the month of July. Several indicators of both demand and supply show healthy signs. For instance, e-way bill volumes have registered robust growth. FMCG sales have also improved sequentially. Alongside, cargo at major ports as well as railway freight traffic has picked up in July. And both steel and cement consumption have registered healthy growth. However, there are other indicators that point towards weakness in parts of the economy. Automobile sales, with the exception of three-wheelers, remain weak. Demand for work by households/individuals under MGNREGA is higher than last year. And non-oil imports are lower than last year indicating weak domestic demand. Of particular concern is the extent to which a pickup in investment is materialising.

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Another study by economists at the central bank, which looks at investment intentions financed through various sources, provides some indications. As investment intentions closely track actual investments (as measured by gross fixed capital formation of private corporates), this serves as a useful indicator of gauging the private investment cycle. As per this (limited) study, in 2022-23, investment plans were made for 982 projects with a capital outlay of Rs 3.5 lakh crore.

In comparison, in 2021-22, plans were drawn up for 791 projects worth Rs 1.96 lakh crore. Around 60 per cent of these projects financed by banks and financial institutions are in the infrastructure sector — power, roads and bridges, SEZs, industrial biotech and IT park. And most are for investment in green field projects. Five states, namely, Uttar Pradesh, Gujarat, Odisha, Maharashtra and Karnataka account for more than half of the total project cost. These are healthy signs.

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While greater clarity on the extent of a pick in the investment cycle will emerge in the months and quarters ahead, stronger bank and corporate sector balance sheets, improving demand conditions and rising capacity utilisation rates, do, as the report argues, “bode well for the capex cycle”.