More Pain in Store for Indian Economy - Goldman Sachs
In a recent report titled India's Economic Slowdown, Mr Andrew Tilton of Goldman Sachs, says that there i more pain in store for the Indian economy over the next few months despite the government's stimulus unveiled last week. They wrote "Weak global macroeconomic conditions, and a negative fiscal impulse are assumed to be a drag on economic activity. The risks to our outlook for economic activity for FY20 continue to be tilted to the downside, given the continued weakness in consumption indicators and persistent confidence concerns emanating from NBFCs. The economic slowdown started in January 2018 and that problems at Infrastructure Leasing and Financial Services was a result of the overall slowdown that had already been seeded in the third quarter of 2017-18 when the goods and services tax was introduced. The current slowdown has lasted for over 18 months and is the longest incident of sluggishness since 2006."
Goldman Sachs believes that Automobile sales is just the tip of the iceberg, with other consumption indicators like air passenger traffic, tax collections, and sales of durable and non-durable consumer goods contributing twice the effect of autos. They wrote “Automobiles contributed 17 per cent of the total slowdown, as against a 36 per cent contribution by other consumption-driven factors including bank agriculture credit, vehicle sales, rural wages, fuel consumption, farm exports, fertiliser sales, rail/air passenger traffic, household credit, and electronic exports. While fertiliser sales and rail passenger traffic were the only indicators that started to fall towards the end of 2018, several variables, such as agriculture credit, rural wage growth and imports of electronic goods have, in fact, been on a descent since 2017.”
Goldman Sachs added “Some part of the slowdown could possibly also be associated with the implementation bottlenecks related to the introduction of goods and services tax in 2017. Effective credit crunch was consequent to the glitches in the GST refund system which tightened the working capital cycle in the industry, especially for the MSME sector. Year-on-year growth in bank credit started to slow only in late 2018, driven by credit to services; and appears to be a symptom of the slowdown, rather than a cause.”
Source : Strategic Research Institute