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Economy: Sound prospects - Views on News from Equitymaster
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  • Dec 26, 2002

    Economy: Sound prospects

    Core sector growth figures are out for the month of November but they seem a bit depressed. For the month of November the growth has been 3.4% compared to 4% in the same period in 2001. But for the period April-November 2002, the growth stood at a healthy 6.4% compared to 1.3% in the corresponding period in 2001.

    The core sector comprises of industries like steel, cement, petroleum products, coal and electricity. Though the November figures are a bit depressed, the overall picture seems encouraging. Growth in the core sector has been mainly boosted by the better performance of the cement and steel sectors. Steel and cement production output has risen significantly. In the period April-November ‘02 cement production has risen by nearly 9% on a YoY basis. Finished steel production on the other hand, has risen by nearly 8% compared to the same period last year.

    Increased housing construction and infrastructure activity in the country is the key reason for the spurt in steel and cement. These sectors are likely to witness buoyant production volumes in the second half of the year too, due to the boom in the housing industry and the long-term nature of these infrastructure projects. That said, growth in the other sectors too has been encouraging, notable among these is the power sector. Electricity production has risen by 6.4% between April-November this year compared to the same period last year. This indicates improvement in both the generation capacity of the country. This again, is likely to continue going forward given the government’s support for the sector. Though core industrial growth has been good, it is by no means a representative of the whole industrial sector. At the most, it gives us a bearing on the industrial activity in the country.

    Agricultural output on the other hand, is estimated to witness de-growth. Advance estimates suggest that kharif output for the current fiscal year has declined by 10%. Services sector however, has reported a healthy growth in the period so far. According to CII, out of 12 sectors surveyed in the services industry 3 have reported excellent growth, 5 have recorded high growth of 10% and above, 2 have reported moderate growth of 0 to 10% and only 2 sectors have reported negative growth.

    Considering the above numbers we can deduce that out of the three components of the Indian GDP i.e. services, manufacturing and agriculture, at least two are likely to report growth rates which are better than last year. The GDP growth estimated by the CMIE at 3.1% does not look too enthusing, but then post FY03 the economy has much to look forward to.

    The Indian economy is still very much dependent on the agricultural output (nearly 75% of the population is in rural India), which in turn is linked to the monsoon. The government thrust on infrastructure and housing projects is creating alternative employment streams for the rural population apart from agriculture. Also, these infrastructure projects are likely to open up new markets for the Indian industry. Indian corporates have also on their part restructured their business to emerge more efficient. The benefits of these exercises are likely to be felt in the next few years.

    With better roads, power infrastructure and houses, India is likely to be a much better investment destination going forward. But the pace of these reforms is likely to decide India Inc.’s place in the global investor recall. After all, China and other countries are all vying for their place in the sun.



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