India’s synergetic growth sets it apart from other major economies which continue to reel under the pandemic
According to the data for the third quarter of the current financial year released by the National Statistical Office (NSO) on February 26, 2021, the gross domestic product (GDP) has grown at a rate of 0.4 per cent against the minus 23.9 per cent in the first quarter. There was a decline of 7.5 per cent in the second quarter. GDP can be seen to decline at 8 per cent in FY 2021 and GVA by 6.5 per cent, while GDP may grow at 11 per cent and nominal GDP by 15 per cent during FY 2022.
The unusual high difference of 148 bps between annual GDP and GVA in FY 2021 is mainly due to the steep decline in net indirect taxes. The nominal loss in the first half of the current financial year was Rs 13.2 lakh crore, which increased to Rs 2.7 lakh crore in the third quarter and is expected to be around Rs 2.8 lakh crore in the fourth quarter. Significantly, the nominal loss for the entire financial year can be around Rs 7.6 lakh crore.
As expected, the agriculture and allied sector grew at a rate of 3.4 per cent in the third quarter of the current financial year against the 3.9 per cent growth in FY 2019-20. The sector is expected to grow at a rate of 3.0 per cent in FY 2021 against the 4.3 per cent FY 2020.
The industry sector also grew positively in the third quarter of FY 2021, while it grew at minus 35.9 per cent in the first quarter. The 2.7 per cent growth in the third quarter is due to a growth of 7.3 per cent in electricity, gas, water supply and other utility services. The construction sector also grew at a rate of 6.2 per cent during this period. However, the growth rate in the mining and quarrying sector is still negative. Due to the mixed performance of the industry subdivisions, the industry sector may grow at the rate of minus 8.2 per cent in FY 2021. It is noteworthy that in FY 2020, the growth in the industry sector was minus 1.2 per cent.
The services sector grew at a rate of 1.0 per cent in the third quarter of FY 2021, compared to minus 21.4 per cent in the first quarter and minus 11.3 per cent in the second quarter. Financial, real estate and business services grew at 6.6 per cent, mainly due to growth in the services sector in the third quarter.
There has been a growth in GDP in the third quarter of FY 2021 but a negative growth in final consumption which is expected to increase positively in the fourth quarter of FY2021 due to the increased government spending. Private final consumption expenditure is also projected to grow at 3.1 per cent in the fourth quarter of FY2021.
The gross fixed capital formation rate turned positive in both real and nominal terms in the third quarter. This is a positive sign for the economy. However, the export and imports have declined in the third quarter and are expected to decrease further in the fourth quarter as well.
The YOY credit incremental figure of all scheduled commercial banks (ASCBs) reached 6.6 per cent by February 12, 2021 in the current financial year, as against 6.4 per cent in the same period of last year. The credit growth of ASCB based on YTD was 3.2 per cent till February 12, 2021, which was Rs 3.3 lakh crore in amount. At the same time, incremental credit grew at a rate of 2.8 per cent till February 12 in FY 2020, amounting to Rs 2.7 lakh crore, 23 per cent higher than the previous fiscal year.
According to the Reserve Bank of India's recent quarterly figures for deposits and credit of Scheduled Commercial Banks (SCBs), credit growth on a YOY basis increased to 6.2 per cent in December 2020 from 5.8 per cent in the previous quarter. Nevertheless, it is less than 7.4 per cent of the same period of last year.
In the case of rural, semi-urban, urban, and metropolitan cities, there has been less credit growth than last year. The credit of private sector banks stood at 6.7 per cent in December 2020 as against 13.1 per cent in the same period of the previous fiscal year, while the credit growth rate of public sector banks increased to 6.5 per cent from 3.7 in December 2019.
According to the sector-wise data released in January 2021, 33 SCB's incremental credit improved significantly in almost all major sectors including agriculture, services, industry and personal loans. Industry and NBFCs are exceptions. Credit flow in mining and quarrying, food processing, textiles, gems and jewellery, petroleum, coal products, nuclear fuel, paper and paper products, leather and leather products, vehicles, vehicle parts and transport equipment etc has increased in January 2021 in comparison to January 2020. However, credit growth has not been much in sectors like rubber, plastics and plastic products, beverages, tobacco, chemicals and chemical products, metal and metal products, construction, infrastructure etc.
Corporates' financial results in the third quarter have also improved from the last year. An analysis of the financial results of over 3,000 listed companies, excluding BFSI and refineries, shows that the top line grew by about 5 per cent, while EBIDTA grew by about 40 per cent. There has been a 60 per cent increase in profit after tax (PAT) in the third quarter of FY 2021 compared to the third quarter of FY 2020. The sectors like automobile, FMCG, pharma, cement, steel, consumer durables, etc. have also performed well during this period.
Interest liability of companies has come down due to a decrease in their debt portfolio. Debt and interest liability of companies decreased by 20 per cent in September 2020, compared to a decrease of 26 per cent in September 2019 and 37 per cent in March 2020. This has enabled the companies to repay the loans of the banks and manage their finances efficiently.
The third quarter saw 23 per cent more tenders being invited than in the second quarter, while the amount increased by 16 per cent. A total of 12,240 tenders were invited in the third quarter amounting to a total of Rs 2.40 lakh crore. There has been an increase of 58 per cent in the number of tenders invited, while a 17 per cent decline has been recorded in terms of the amount.
An analysis of ratings of various corporates shows that their debt ratio has been improving since August 2020. The ratings of 26 key sectors have improved from September 2020 to January 2021 as compared to April 2020 to August 2020. Overall ratings of 899 corporates have been upgraded from September 2020 to January 2021, while ratings of 4,998 corporates have come down. At the same time, the ratings of 462 corporates were upgraded from April 2020 to August 2020, while the ratings of 5,732 corporates declined.
India is one of the major economies in the world which has a positive GDP growth rate in the last quarter of the calendar year 2020. It is noteworthy that the GDP growth rate in the last quarter of the calendar year 2020 of most European countries has been negative and their GDP is expected to contract further in the fourth quarter of the current financial year. It can be said that all the figures of the economy are shining, and the Indian economy is coming out of the Corona pandemic.
The writer is the Chief Manager in the Department of Economic Research at the Corporate Centre of State Bank of India, Mumbai. Views expressed are personal