Business cycle conditions

INDIA - Report 11 Mar 2019 by Ajay Shah and Ila Patnaik

The conventional GDP data shows a recovery in late 2017. However, the Indian GDP data became less reliable with the methodology change in 2015, which applies to the series from 2012 onwards.

We assess business cycle conditions through three pathways. We have constructed a “coincident indicator,” which shows how far the economy is from the long-term trend, in percent. This shows a slow recovery from 2015 onwards. The Oct-Dec 2018 quarter is +2.37%, but it is a slight decline compared with the previous quarter. This value is significantly below the +10% values seen in previous business cycle expansions.

The second measure is the growth of the top line of listed companies. Here, there is good news in the form of four consecutive quarters of values above 0. Such an event has not been seen since 2012. The latest value is +7.52% in nominal annualized terms. The deviation from trend is much more positive for the listed companies when compared with the overall economy, which suggests that smaller firms are faring worse. The net profit of firms has fared well in the last three quarters when compared with recent years, but remains at values inferior to those seen in 2010 in nominal terms.

The number of persons who are working has grown from 370 million to 375 million in three years. This lags the rate at which the working age population has grown. This has resulted in an increase in the non-workers share. Measured unemployment in India is less useful than the non-workers share, as persons tend to withdraw from the labor force when business cycle conditions are difficult, and vice versa.

Investment is measured using micro data for projects at hand. Infrastructure projects under implementation has been growing slowly in nominal terms, albeit with a declining share of private projects. The overall projects under implementation has been roughly stagnant. Private announced projects, a key measure of business confidence, is faring poorly.

Export growth has been strong, with an expansion of non-oil non-gold exports from about $30B/month to about $40B/month over a three-year period.

The leading indicator of the business cycle surged sharply in late 2017 but declined sharply in 2018. This may be associated with the stress in the financial system. Hence, the coincident indicator for Jan-Mar 2019 may come in at a value of less than +2.37%. This release is scheduled for April 17, 2019.

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