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Assocham reels out feel-good economic facts and figures

The lead economic indicators -- credit offtake, industrial and export growth rate and foreign investment -- signal a strong pick-up for the economy in the first quarter (April-June) of the current fiscal year, the Associated Chambers of Commerce and Industry of India president K P Singh said.

The quality of growth in the three months up to June which is the most crucial quarter in first half of the financial year is especially encouraging as the improved performance extends to both the domestic and external sectors.

More importantly, the figures clearly show that the build-up has been sustained and that the positive signals that were visible in the last quarter of 1998-99 have gathered further momentum and spread to more segments of the economy.

Singh said the most recent numbers show that credit offtake in the economy has picked up for the first time in four years even while industrial growth rate inches closer to the two-digit level.

Simultaneously, agriculture output in the first half of the currenty year is all set to better its performance over the levels achieved in the same period last year. And the downward pressures on both price levels and interest rates have continued to build up in recent months.

But the most optimistic indicator of the strong recovery is assured reversal of the declining trends in domestic investment for the first time in many years. This signals the improved medium and long term business expectations of industry.

''This commendable performance in the domestic sector has also been replicated on the external front. The trade deficit has been going down in recent months as export growth rates have gone up faster than those of imports. And despite the overall decline in foreign investments in the last fiscal, the quarterly figures show significant improvement in inflows and this positive trend has stretched into the current year,'' he said.

The increased flow of bank credit to the commercial sector is the first sure sign of the higher levels of activity in the economy. Bank credit to the commercial sector in the fiscal went up by Rs 16.22 billion by May 21 this year as against on Rs 25.38 billion decline in bank credit during the same period in 1998-99.

A significant credit pick-up is happening for the first time in four years. Bank credit to the commercial sector in the same period declined by Rs 25.16 billion in 1997-98 and by Rs 63.81 billion in 1996-97. The softening of interest rates over the last year would have also contributed to the higher offtake of credit.

Similar improvement is also visible in the industrial performance indicators. Industrial growth rates that had picked up since the second half of the 1998-99 seems all set to head very much closer towards double-digit growth rates.

Industrial growth rates have gone up from 3.2 per cent in the first month of the current fiscal year. The continuous improvement in growth rates to close to seven per cent in April this year is very encouraging given that growth rate was only 3.9 per cent in April 1997-98 and 4.8 per cent in April 1998-99. The latest trends in indirect tax collection indicate that the initial positive trends in industrial growth have continued in the subsequent months, Singh said.

The Assocham chief said the pick up in the manufacturing sector had been even more encouraging. Growth rates rose from 3.5 per cent in the third quarter of 1998-99 to 4.7 per cent in the fourth quarter and touched 7.8 per cent in April this year.

This also compares favorably with the manufacturing sector growth in April 1997-98 and 1998-99. The April growth rates in these years were only 3.8 per cent and 4.9 per cent respectively. The uptrend in the manufacturing sector is crucial as it indicates that the overall pick up in the industrial sector would be sustained over the first half of the current year. This is because the growth of the manufacturing sector has generally peaked in the second quarter in recent years.

However, the most encouraging sign on the domestic front is the steady improvement in domestic investments. The sizable increase in investments over the year is a very positive signal as this is the first time that the declining trend has been so significantly reversed since July 1995. The latest figures on domestic investment proposals available up to January 1999 shows that business confidence has certainly improved significantly over the last year.

The size of domestic investment proposals, as indicated by the industrial entrepreneurs memoranda, went up from Rs 113.57 billion in the first quarter of 1998-99 to Rs 157.99 billion in the second quarter and further to Rs 171.40 in the third quarter.

The initial figures for the fourth quarter also indicate that the improvements are likely to continue. The gains are visible not only when compared with the previous quarters of the year but also when compared with the corresponding quarters of the previous year.

This clearly indicates that the business confidence has picked up for the first time since the slowdown in the economy in the last three years.

The industrial pick up in the first quarter of the financial year will also be aided by the better performance of the agriculture sector. The quarterly figures of the national income statistics show that the agriculture production has remained stagnant in the first two quarters of 1998-99.

A normal southwest monsoon this year means that agriculture output will also certainly pick up in the first half of the current year and contribute to the overall economic recovery. The decline in the wholesale price index, especially of the food items, point to the easing of the supply constraints in the agriculture sector.

Overall inflation rates as measured by the Wholesale Price Index was only 1.1 per cent in the fiscal year up to May 29 as compared to the 2.2 per cent growth in the same period last year.

Singh said in the external sector, the most important development is the revival in exports for the first time in four years. Exports have picked up by six per cent in the period April-May 1999-2000 as against the 7.5 per cent decline in the same period in 1998-1999.

The figure for the first two months clearly indicates that exports growth in the current year would further build up on the 7.8 per cent growth rate achieved in the last quarter of 1998-99.

The trade deficit in the first two months of the current year has also decreased by around one third to $ 1.29 billion. This will aid to keep the current account deficits at a lower level than in 1998-99.

Similarly, the trends in the capital accounts are also very encouraging. The latest figures on foreign investments also show that the initial trends have been reversed and that inflows have picked up. Foreign direct investments has picked up to $ 501 million in the last quarter of 1998-99 after steadily declining in the first three quarters -- from $ 862 million in the first quarter to $ 388 million in the second quarter and further to $ 252 million in the third quarter.

Similarly, the foreign institutional investments have steadily picked up after registering net outflows in the first three-quarters of 1998-99. FII investments have gone up to $ 247 million in the last quarter of 1998-99 to $ 619 million in the first two months of the current year.

UNI

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