<ul><li>Household investment in <keyword id="6354553" type="General" weightage="20" keywordseo="real-estate" source="Orion">real estate</keyword> and government’s capital expenditure are expected to drive India’s investments in FY24. </li><li>A revival in housing loans by banks, rising residential prices and a 48% increase in housing sales in FY23 point to a robust real estate sector. </li><li><keyword id="4875151" type="General" weightage="20" keywordseo="government-capex" source="Orion">Government capex</keyword> is also on a consistent rise since five years, more than tripling from ₹3.1 lakh crore in FY19 to ₹10 lakh crore in FY24. </li><li>Analysts say capital-intensive and cyclical stocks are expected to benefit the most from these expected spends. </li></ul>India’s investments will continue to be driven by household investment in real estate and government’s capital expenditure in FY24, keeping the country’s gross fixed capital formation (<keyword id="1813745" type="General" weightage="80" keywordseo="gfcf" source="Orion">GFCF</keyword>) on the path of growth in the post-pandemic era. India’s GFCF has been on an upward trajectory since the Covid-19 pandemic. According to government data, GFCF grew 25.6% in FY22 to reach ₹67.9 lakh crore, and in FY23, it grew at 17.1% to reach ₹79.5 lakh crore. GFCF refers to the total value of investment made by businesses, governments, and other entities in acquiring new fixed assets or increasing the value of existing fixed assets within an economy. It’s used as an indicator of investment in the economy and also represents an important component of demand. A rising GFCF is an indicator of improving economic activity and a trigger for future growth. According to analysts at ICICI Securities, household investment in real estate and government <keyword id="46930" type="General" weightage="20" keywordseo="capex" source="Orion">capex</keyword> were the two primary drivers of growth in GFCF during FY22, growing at 30% and 29%, respectively. Government capex has been on a consistent rise since FY19 – the<a href="https://www.businessinsider.in/budget/news/budget-for-the-amrit-kaal-powered-by-capex-rooted-in-fiscal-consolidation/articleshow/97551916.cms"> budgeted capex outlay of ₹10 lakh crore in FY24</a> is more than triple the budgeted capex of ₹3.1 lakh crore in FY19. <div type="image" title="Capex" msid="100301291" hostid="261" sizebytes="16040" caption="&amp;lt;p&amp;gt;Government capex since FY19 to FY24&amp;lt;/p&amp;gt;"></div> “Overall, during FY24 we expect central government capex and real estate investments to continue leading growth in ‘investment rate’,” said the ICICI Securities report. <cmsannotation type="cmsannotation" annotationid="The hunger for makaan" comment="subhead" text="The hunger for makaan"></cmsannotation>The hunger for makaan Indians’ appetite for a roof over their heads – a makaan – remains robust, with multiple signs pointing to real estate investments by households continuing to drive the growth in GFCF in FY23. “While an institutional breakup of GFCF for FY23 is not yet available, the latest indicators of real estate demand by households remain robust,” the report added. There are multiple data points which underline the robustness of the real estate sector. For instance, housing loans by banks have rebounded, registering a growth of 15.4% on a 12-month moving-average basis, according to the brokerage. In addition to this, housing sales have also risen by 48% to ₹3.47 lakh crore in FY23, pointing at a growing appetite for new residential properties, according to data from real estate consultant Anarock. Real estate advisory firm PropTiger has also revealed that residential prices have gone up by 7% across India in the March quarter. “Likely end of an aggressive interest rate hike cycle could potentially augment the overall investment and real estate cycle further,” the ICICI Securities report added. <cmsannotation type="cmsannotation" annotationid="Companies in these sectors will benefit the most, say analysts" comment="subhead" text="Companies in these sectors will benefit the most, say analysts">Companies in these sectors will benefit the most, say analysts</cmsannotation> As far as the markets are concerned, analysts believe that<a href="https://www.businessinsider.in/stock-market/news/capital-intensive-cyclical-and-value-stocks-to-continue-their-outperformance/articleshow/95659482.cms"> capital-intensive and cyclical stocks will benefit the most</a>. “We prefer BFSI (banking, financial services, and insurance), information technology, industrials, auto and cement while we are underweight on energy in our model portfolio,” said a report by Motilal Oswal. With the Reserve Bank of India expecting a revival in India Inc’s capital expenditure cycle and analysts believing that the private sector’s capital expenditure has bottomed out, the stars are aligned for the Indian economy’s growth and outperformance of companies in capital-intensive and cyclical sectors. SEE ALSO: <a href="https://www.businessinsider.in/business/corporates/news/ondc-not-an-immediate-risk-for-zomato-and-swiggy-as-lower-prices-are-due-to-discounts/articleshow/100298963.cms">ONDC not an immediate risk for Zomato and Swiggy as lower prices are due to discounts</a> <a href="https://www.businessinsider.in/stock-market/news/five-reason-why-markets-will-not-run-up-further-from-here/articleshow/100294718.cms">Five reasons why markets will not run up further from here</a> <a href="https://www.businessinsider.in/business/news/indias-super-rich-will-double-in-numbers-to-1-6-million-by-2027-knight-frank/articleshow/100298454.cms">India’s super rich will double in numbers to 1.6 million by 2027: Knight Frank</a>

Investments in real estate, government capex to drive India’s investment cycle in FY24

India's current world-beating economic growth rate on the back of an investment boom resembles that of 2003-07 when growth averaged more than 8 per cent, according to economists at <keyword id="48670" type="General" weightage="20" keywordseo="Morgan-Stanley" source="Orion">Morgan Stanley</keyword>. In a report '<keyword id="20990538" type="General" weightage="20" keywordseo="The-Viewpoint-India" source="Orion">The Viewpoint: India</keyword> - Why this feels like 2003-07', Morgan Stanley said after a decade of investment to GDP steadily declining, <keyword id="46930" type="General" weightage="20" keywordseo="capex" source="Orion">capex</keyword> has emerged as a key growth driver in India. "We think the capex cycle has more room to run, therefore the current expansion closely resembles that of 2003-07. The current cycle is driven by investment outperforming consumption, <keyword id="3567420" type="General" weightage="20" keywordseo="public-capex" source="Orion">public capex</keyword> leading initially but <keyword id="3896912" type="General" weightage="20" keywordseo="private-capex" source="Orion">private capex</keyword> rapidly catching up, the urban consumer leading consumption followed by catch-up in rural demand, market share in global exports rising and macro stability risks kept in check. "We think the defining characteristic of the current expansion is the rise in the investment-to-GDP ratio. Similarly, in the 2003-07 cycle investment to GDP rose from 27 per cent in F2003 (fiscal year ending March 2003) to 39 per cent in F2008, which was close to the peak. "Investment to GDP then hovered around those levels until it peaked in F2011. 2011 to 2021 then registered a decade of decline - but the ratio has now inflected again to 34 per cent of GDP and we expect it to rise further to 36 per cent of GDP in F2027E," it said. In 2003-07, the capex boom led to an acceleration in productivity, job creation and income growth. As more labour was absorbed into employment by the strengthening economy, savings to GDP also rose from 28 per cent in F2003 to 39 per cent in F2008. During 2003-07, GDP growth averaged 8.6 per cent and headline CPI inflation averaged 4.8 per cent. The current account balance stayed within the central bank's comfort zone, ranging between 2.8 per cent to -1.4 per cent of GDP on a 4Q trailing sum basis. Even when oil prices shot up to USD 145 per barrel in July 2008, the current account deficit only widened to 2.4 per cent of GDP the following quarter, the research report said. Gross fixed capital formation (GFCF) growth in India accelerated sharply from 8.2 per cent in 2002 to 17.5 per cent in 2004, and the pace of growth held firm at 16.2 per cent in 2005-07. In that cycle, the fiscal deficit was already consolidated, the banking system's non-performing loan issues were cleaned up and the economy was poised for a capex upswing. "However, the initial pick-up in private consumption growth was more modest, averaging just 4.8 per cent in 2003-04," it said. In the current cycle, real GFCF growth continued to hold strong at 10.5 per cent in October-December, staying above the pre-Covid 2017-18 average of 9.6 per cent. "This has been mainly driven by public capex so far, as the corporate sector has been working through multiple shocks from previous years that have weighed on its ability to invest," it said adding now that corporate profit (based on bottom-up company data) to GDP has picked up from a trough of 1.1 per cent in F2020 to 5.4 per cent in F2023, early signs of private capex gaining momentum are being seen. On the flip side, private consumption is still relatively weak, tracking at just 3.5 per cent in the December quarter, below the pre-Covid 2017-18 average of 6.5 per cent. Morgan Stanley said policymakers' concerted policy push on supply-side reforms in recent years has meant that real government fixed capex growth inflected higher from F2020. Government fixed capex as a percentage of GDP rose from a trough of 3.6 per cent in F2019 to 4.0 per cent in F2021, again picking up ahead of private capex. "A capex-led growth cycle can extend expansion, as rising investment to GDP ratios drive capital deepening and boost productivity growth. The deployment of surplus labor as capex creates employment opportunities can lead to higher income and savings in an economy and ensure the current account balance remains in a manageable range, even as investment to GDP rises," it said adding the public capex-led nature of the present cycle in India plays an even more important role for the sustainability of the overall capex cycle. Infrastructure projects tend to face long gestation periods but generate large positive externalities. "In that sense, we believe it is important for the public sector to undertake such spending to ensure a clearer runway for private capex to take off by eliminating supply-side bottlenecks ahead of time," it added.

India's economic boom feels like 2003-07: Morgan Stanley

<ul><li>India’s investments into <keyword id="3347616" type="General" weightage="20" keywordseo="fixed-assets" source="Orion">fixed assets</keyword> has hit a decadal high in the fourth quarter of FY23. </li><li>In the last quarter of FY23, government capex was up ove 20% compared to the same period a year before. Private entities too will follow suit, says Nirmal Bang. </li><li>Improving affordability and rising loan tenures could possibly sustain a multi-year residential real estate cycle. </li></ul>India’s investments into fixed assets hit a decadal high in the fourth quarter of FY23. Measured in terms of Gross Fixed Capital Formation (GFCF) — which is investments of producers in fixed assets — it’s now at a high of 35.3% of India’s gross domestic product (GDP), as per a research report by Nirmal Bang. The trigger to this high is the Indian government raising its spending. In the last quarter of FY23, its capex was up by 22.9% YoY. Going ahead, the research firm believes that private entities too will go in for capacity expansion —- as capacity utilization of industries is now hovering between 74-75% in the last one year on an average. “Private capex announcements in FY23 more than doubled from pre-pandemic levels and are running ahead of the central and state governments,” said a Nirmal Bang report named India Capex Meter. Overall, new capex crossed the pre-pandemic peak and stood at around ₹12 lakh crore tn in 4QFY23, according to data from CMIE. Multi-year residential real estate cycle Real mortgage rates have risen over the past year, but a structural downtrend persists. The report finds that the Indian household capex has held on, aiding growth in the housing sector. While it did flatten out recently due to rising interest rates, growth in housing credit could possibly sustain marginally above system credit growth, Nirmal Bang believes. “This, along with improving affordability and rising loan tenures could possibly sustain a multi- year residential real estate cycle,” it adds. For corporates, however, real interest rates have recently turned slightly adverse, rising above their long-term trend. This however is unlikely to be a major deterrent in the near term since the initial leg of private capex recovery is unlikely to be bank funded. Capital goods sector Most of the capex indicators have remained in positive territory over the past year, the most significant being the capital goods sector – that builds industries. “While the central government’s persistent capex focus provided the initial thrust, indicators such as capital goods production and capital goods imports too have sustained in the positive territory over the past year,” the report said. Yet another indicator, that’s – the profitability of the capital goods sector has also improved. “Operating profitability of BSE Capital Goods companies has sustained in the positive territory despite persistent pressure on margins. Over the past two quarters, operating profitability of the BSE Capital Goods companies has grown by over 15% YoY,” said Nirmal Bang. There’s more steam left? State and central governments have been steadily spending on building road projects. The road construction has been robust, but the nature of investment into the sector seems to be changing. While state and central governments seem to be slowing down, the <keyword id="53482" type="General" weightage="20" keywordseo="private-sector" source="Orion">private sector</keyword> is more than making up for it, with project announcements. Bank credit to the sector is also on-point. “Bank credit to the infrastructure sector has seen some sluggishness recently, but bank credit to the roads sector, which is the key beneficiary of government capex, seems to be holding up,” the report said. Manufacturing back to pre-Covid levels Going by the investment proposals, there seems to be a broad-based capex recovery, the research report says. In 4QFY23, investments in the manufacturing sector were about 48% above the pre-Covid level. “Sectors that saw recovery were chemicals, metals, machinery and miscellaneous manufacturing. Investments in food &amp; agro-based products remained below the pre-pandemic level,” said Nirmal Bang. The top sector in terms of investment proposals by value is metals. It is followed by sectors such as sugar, transportation, textiles, drugs &amp; pharmaceuticals, chemicals and fermentation-based pharmaceuticals. Even sectors such as leather are seeing some resurgence, aided by China +1 strategies. The share of sectors like electrical equipment is seen moderating as some of the early Production Linked Incentive (PLI) schemes get implemented. On the other hand, proposals from sectors like food processing and textiles are seen rising.

Indian private sector to take a cue from government and raise investments in fixed assets

<ul><li>Rise in investments in residential real estate coincides with a rise in the aggregate <keyword id="16695918" type="General" weightage="20" keywordseo="disposable-income-of-households" source="Orion">disposable income of households</keyword>, says a report by ICICI Securities.</li><li>For every square foot that’s built, the realty sector helps generate income anywhere between ₹2,000-6,000, depending on the type of building.</li><li>The average income of a construction worker in rural India as per the Labour Bureau statistics is around ₹500-600 per day while for those in the urban areas it is usually higher.</li></ul>There is a direct correlation between growing household incomes and a vibrant <keyword id="6543013" type="General" weightage="20" keywordseo="real-estate-sector" source="Orion">real estate sector</keyword>. The signs of recovery in the real estate industry are expected to support aggregate <keyword id="386349" type="General" weightage="20" keywordseo="household-income" source="Orion">household income</keyword> considering it is the second-largest employer in India after <keyword id="6355165" type="General" weightage="20" keywordseo="agriculture" source="Orion">agriculture</keyword>, says a report by ICICI Securities. The sector generates a variety of jobs including for construction workers and other informal jobs for masons, plumbers, concrete workers, electricians, carpenters, painters, drivers, helpers, loaders, etc. For every square foot that’s built, it helps generate income anywhere between ₹2,000-6,000, depending on the type of building — ranging from basic to high-rise luxury skyscrapers. “Incremental value additions done to the builder-finished construction by end-users can go up to several thousand rupees per square foot depending upon the taste and capability of the end-user,” ICICI Securities says. <div type="image" title="Real estate report 2" msid="98390920" hostid="261" sizebytes="52976"></div> How much does construction pay? The <keyword id="6462448" type="General" weightage="20" keywordseo="construction-sector" source="Orion">construction sector</keyword> is also a better paymaster than agriculture, the report adds. The average income of a construction worker in rural India as per the Labour Bureau statistics is around ₹500-600 per day. In urban areas, it gets higher. “Anecdotal evidence for larger cities indicates the wages are at least 30-40% higher for construction workers with higher skills and experience,” the report says. Another group of professions to benefit from real estate development are mortgage lenders, material suppliers, contractors, architects, designers, engineers, lawyers, real estate brokers, etc. In addition, allied sectors involved in labour-intensive manufacturing activity in the unorganised segment — such as furniture, ceramics, glassware, lightings and other decorative products – also benefit from an upcycle in real estate. Large-scale organised manufacturing like cement, steel, ceramics, plywood, paints, adhesives, etc are also beneficiaries. “Household real estate investment cycle is rising after a decade of stagnation during which its share in gross fixed capital formation (GFCF) dipped from 37% in FY12 to 25% in 2021. The cyclical recovery in residential real estate will boost income growth of related stakeholders mentioned above. Workers involved in the leisure segment, which again is dominated by the unorganised segment, are also likely to see buoyant income growth,” said the report. However, the report mentions that agriculture wages remain a key risk to aggregate income growth, given its large weight within the aggregate workforce. And the prospects of it will depend on how monsoon and agriculture output pans out in FY24. <div type="image" title="real 3" msid="98390948" hostid="261" sizebytes="48628"></div> Wage bills to rise all across ICICI Securities also says that the aggregate wage bill of the private corporate sector has been expanding more than the nominal GDP growth over the past decade. “The trend is likely to continue in FY24 going by recent salary surveys and hiring trends in the formal segment although IT services, with its large weight, is expected to lag,” the report said. According to a survey by Aon, salaries in India are expected to go up by 10.3% in 2023, in spite of concerns around economic volatility. This could be in response to a high attrition rate of 21.4% in 2022. In 2022, the actual salary increase was slightly higher at 10.6%. The projected salary increase for India is the highest among major world economies like China, US and UK, Aon said. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/corporates/news/adani-group-stocks-rally-after-it-sells-stake-to-gqg-partners/articleshow/98384846.cms">Adani group stocks rally post GQG deal: group marketcap surges by ₹73,000 crore</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/auto/news/tractors-commercial-vehicles-drive-auto-sales-in-february-but-el-nio-threat-looms-large/articleshow/98386451.cms">Tractors &amp; commercial vehicles drive auto sales in February but El Niño threat looms large</a>

Recovery in real estate sector likely to boost household income, says ICICI Securities

<ul><li>The post-COVID economic recovery of low-income households has been slow, according to a new report.</li><li> This has had a direct impact on the overall economic recovery of the country.</li><li> The report adds that it may take a few more quarters for growth to recover to full potential.</li></ul>The slow economic recovery of the low income households post Covid-19 pandemic has resulted in the overall economic recovery of the country, said <keyword id="66607" type="General" weightage="50" keywordseo="kotak-securities" source="Orion">Kotak Securities</keyword> Ltd. In a research report, Kotak Securities said, post Covid-19 pandemic, <keyword id="3658" type="General" weightage="50" keywordseo="india" source="Orion">India</keyword>'s economic recovery seems to be lukewarm on a three-year compounded annual growth rate (<keyword id="107168" type="General" weightage="80" keywordseo="cagr" source="Orion">CAGR</keyword>) basis. The major economic parameters reveal slow post-pandemic recovery, with gross domestic product (GDP), goods and services tax (GST) collections, electricity demand, credit growth and auto sales growing somewhat slowly as against the expectations. Kotak Securities attribute the weaker-than-expected recovery to the slow 'repair' in the income of low-income households. "It may take a few more quarters for growth to recover to full potential," the report said. India's 1QFY23 GDP grew at 1.3 per cent CAGR over the past three years, despite growing 13.5 per cent year-on-year (YoY). According to the report, the survey-based employment data suggests that India has not completely recouped all the jobs lost during the pandemic. "While formal job creation has been robust, the employment conditions remain frail in the lower-income groups, as employment-seeking under MNREGA is yet to reach pre-pandemic levels," the report said. It may take a few more quarters for employment and income to recover to pre-pandemic levels. The six month GST collections in FY23 logged a growth of 13.8 per cent on a three-year CAGR basis. The high wholesale price index (WPI) in the last couple of years may have helped higher GST collections in this period. The expectation is that the WPI will sharply trend lower over the next several months. Collections have grown at a higher pace than nominal GDP growth rate (9.5 per cent on a three-year CAGR), suggesting some widening of the tax base. On the industrial growth front, India's indicators look rosy on a yoy basis but lose their sheen when examined on a three-year CAGR basis. In particular, diesel consumption in 5MFY23 declined by 0.4 per cent and electricity demand grew at 4.7 per cent on a three-year CAGR basis. Meanwhile, gross fixed capital formation (GFCF) has seen a muted 2.2 per cent CAGR over the past three years, despite strong government and household investment. Household investment in real estate was a key driver, seeing a 14 per cent three-year CAGR in major cities, while the Central government capex increased at 23 per cent three-year CAGR. As such, industrial production and private-sector investment are yet to show a meaningful recovery. Private consumption has not seen much of a recovery, with private final consumption expenditure (PFCE) growing at 3.2 per cent on a three-year CAGR basis, Kotak Securities said. The shallowness of the recovery is prominent in the automobile sector, especially in two wheelers as their sales volumes have declined at six per cent CAGR over the past three years (5MFY23 over 5MFY20), while hatchback (entry segment) volumes have increased at 3.2 per cent CAGR in the same period. Air passenger traffic has also not seen a complete recovery in 5MFY23. "We note that retail credit growth has been resilient at 15.3 per c ent CAGR, but not enough to pick up the slack in overall bank credit growth," Kotak Securities said.

Slow recovery of low income households slowed down India's economic recovery: Kotak report

New Delhi, Nov 29 () India's GDP growth hit an over six-year low of 4.5 per cent in July-September 2019, dragged mainly by deceleration in manufacturing output and subdued farm sector activity, according to official data released on Friday.
The Gross Domestic Product (GDP) growth was recorded at 7 per cent in the corresponding quarter of FY 2018-19. In the previous quarter of the ongoing fiscal, the economic growth was 5 per cent. 
This GDP growth data for the September 2019 quarter is the lowest since January-March of 2012-13, when it was registered at 4.3 per cent. 
According to the data released by National Statistical Office (NSO), the gross value added (GVA) growth in the manufacturing sector contracted by 1 per cent in the second quarter of this fiscal from 6.9 per cent expansion a year ago.
 Similarly, farm sector GVA growth remained subdued at 2.1 per cent, down from 4.9 per cent in the corresponding period of the previous fiscal.
 Construction sector GVA growth too slowed to 3.3 per cent from 8.5 per cent earlier. Mining sector growth was recorded at 0.1 per cent as against 2.2 per cent contraction a year ago.
 Electricity, gas, water supply and other utility services growth also slowed to 3.6 per cent from 8.7 per cent a year ago. Similarly, trade, hotel, transport, communication and services related to broadcasting growth was also down to 4.8 per cent in the second quarter from 6.9 per cent a year ago.
 Financial, real estate and professional services growth slowed to 5.8 per cent in the Q2 FY2019-20 from 7 per cent a year ago.
 On the other hand, public administration, defence and other services reported improvement with an 11.6 per cent rise during the quarter under review from 8.6 per cent a year earlier.
On a half-yearly basis (April-September 2019), GDP growth came in at 4.8 per cent as compared to 7.5 per cent in the same period a year ago.
 "GDP at constant (2011-12) prices in Q2 of 2019-20 is estimated at Rs 35.99 lakh crore, as against Rs 34.43 lakh crore in Q2 of 2018-19, showing a growth rate of 4.5 percent," an NSO statement said.
 Gross Fixed Capital Formation (GFCF), which is barometer of investment, at constant (2011-2012) prices, estimated at Rs 10.83 lakh crore in Q2 of 2019-20 as against Rs 11.16 lakh crore in Q2 of 2018-19. 
 In terms of GDP, the rates of GFCF at Current and Constant (2011-2012) prices during Q2 of 2019-20 are estimated at 27.3 per cent and 30.1 per cent, respectively, as against the corresponding rates of 29.2 per cent and 32.4 per cent, respectively in Q2 of 2018-19.
 "Growth rates of GFCF at Current and Constant Prices are estimated at (-) 0.9 percent and (-) 3.0 percent during Q2 of 2019-20 as compared to 16.2 percent and 11.8 percent during Q2 of 2018-19," it added. 
The Reserve Bank had lowered the GDP growth projection for 2019-20 to 6.1 per cent from earlier forecast of 6.9 per cent.
China's economic growth was 6 per cent in July-September 2019, which was the weakest expansion in over 27 years. 
 Earlier in the day, the government data showed that output of eight core infrastructure industries contracted by 5.8 per cent in October, indicating the severity of economic slowdown
 As many as six of eight core industries saw a contraction in output in October. KKS CS MKJ

India's Q2 GDP growth dips to over 6-yr low of 4.5%; manufacturing, farm sectors weigh

India's economy is likely to shrink by 5.3 per cent this fiscal, the <keyword id="8057424" type="UNKNOWN" weightage="20" keywordseo="Lowest-GDP-growth">lowest GDP growth</keyword> in the Indian history and the sixth instance of economic contraction, India Ratings and Research said on Wednesday. "The disorder caused by the COVID-19 pandemic unfolded with such a speed and scale that the disruption in production, breakdown of supply chains/trade channels and total wash out of activities in aviation (some activities have started now), tourism, hotels and hospitality sectors will not allow the economic activity to return to normalcy throughout FY21," the rating agency said in a report. As a result, besides contracting for the whole year, GDP will contract in each quarter in FY21 (April 2020 to March 2021). However, the agency believes the GDP growth would bounce back in the range of 5-6 per cent in <keyword id="5027223" type="COMPANY" weightage="20" keywordseo="FY22">FY22</keyword> (April 2021 to March 2022), aided by base effect and return of gradual normalcy in the domestic as well as global economy. India Ratings (Ind-Ra) said India's gross domestic product (GDP) will contract 5.3 per cent in FY21. "This will be the lowest GDP growth in the Indian history (Indian GDP data is available from FY51) and sixth instance of economic contraction, others being in FY58, FY66, FY67, FY73 and FY80; the previous low was negative 5.2 per cent in FY80," it said. The government had announced an economic package of Rs 20.97 lakh crore (10 per cent of GDP) on May 12, 2020 to mitigate the adverse impact of COVID-19 and related lockdown. However, Ind-Ra's calculations, excluding the <keyword id="35025" type="PERSON" weightage="20" keywordseo="monetary-measures">monetary measures</keyword> and existing proposals in the union budget, show that the direct fiscal impact is only Rs 2.145 lakh crore (1.1 per cent of GDP). "The credit and liquidity enhancing measures announced in the economic package in combination with some of the earlier steps announced by the Reserve Bank of India (RBI) will certainly address the supply-side issues of the economy," it said. The Indian economy even before the COVID-19 related lockdown was suffering on the demand side, as all the demand drivers, except government final consumption expenditure (GFCE), namely private final consumption expenditure (PFCE), <keyword id="756316" type="PERSON" weightage="20" keywordseo="gross-fixed-capital-formation">gross fixed capital formation</keyword> (GFCF) and net exports were <keyword id="2258914" type="PERSON" weightage="20" keywordseo="Floundering">floundering</keyword>. The lockdown and its impact on the economy and livelihoods only aggravated the sagging consumption demand. "Ind-Ra believes the government is aware of it; but, the near absence of demand-side measures in the economic package indicates the hard budget constraint facing the government," the report said. Ind-Ra saw PFCE contracting 5.1 per cent in FY21 (FY20: 5.3 per cent yoy) to reach a level lower than FY19's. Even GFCF will contract 17.6 per cent in FY21 and the investment revival will now be pushed beyond FY22 due to a combination of excess capacity, weak demand, stretched balance sheet of Indian corporates and budget constraints leading to reduced government capex. "The external environment continues to be challenging due to COVID-19 related restrictions coupled with trade friction and protectionist policy pursued by many developed economies," it said. Ind-Ra expected merchandise exports to decline 9.4 per cent in FY21 (FY20: negative 4.9 per cent), as all major export commodities would clock negative growth. Merchandise imports are expected to decline 17.4 per cent in FY21 (FY20: negative 8.9 per cent). As a result, the trade deficit is estimated to decline to a four-year low of USD 97.7 billion (3.9 per cent of GDP) and current account deficit to USD 3.3 billion (0.1 per cent of GDP) in FY21. However, 1QFY21 may see a current account surplus. "From the supply side, agriculture is the only bright spot. Agricultural gross value added (GVA) is expected to grow 3.5 per cent in FY21," the rating agency said adding the Indian Meteorological Department has predicted the monsoon rainfall to be 102 per cent of long period average (1961-2010) in 2020. Ind-Ra expects the retail and wholesale inflation to come in at 3.6 per cent and 1.2 per cent, respectively, in FY21. "Fiscal deficit of the central government in FY21 is expected to more than double (7.6 per cent of GDP) the budgeted amount (3.5 per cent of GDP). The majority of the fiscal slippage will be from the revenue side," it added. SEE ALSO: <a href="https://www.businessinsider.in/india/news/karnataka-health-minister-hints-at-lockdown-in-covid-hit-bengaluru-again/articleshow/76542217.cms" data-type="tilCustomLink">Karnataka Health Minister hints at lockdown in Covid-hit Bengaluru again </a> <a href="https://www.businessinsider.in/business/news/mukesh-ambani-radhakishan-damani-and-shiv-nadar-took-over-10-years-to-become-a-billionaire/slidelist/76547186.cms" data-type="tilCustomLink">Indians took 17 years on an average to make their first billion— and it has gotten a lot faster recently</a>

India's GDP to contract by 5.3% due to coronavirus 'disorder', says India Ratings

Mumbai, Jun 4 () Consumer confidence has collapsed amid the coronavirus pandemic and it may result in contraction of the economy by 1.5 per cent during 2020-21, surveys released by the Reserve Bank showed on Thursday. "Consumer confidence collapsed in May 2020, with the Current Situation Index (CSI) touching historic low and the one year ahead Future Expectations Index (FEI) also recording a sharp fall, entering the zone of pessimism," as per the Consumer Confidence Survey (CCS) released by the RBI. According to another survey, GDP during the current financial year is likely to contract by 1.5 per cent, though the next fiscal is expected to be much better. "Real gross domestic product (GDP) is likely to contract by 1.5 per cent in 2020-21 but is expected to revert to growth terrain next year, when it is likely to grow by 7.2 per cent," said the Survey of Professional Forecasters (SPF) sponsored by the RBI. Real private final consumption expenditure (PFCE) is expected to decline by 0.5 per cent during 2020-21 but likely to record 6.9 per cent growth next fiscal, the survey said. It added that real gross fixed capital formation (GFCF) is likely to register negative growth of 6.4 per cent in 2020-21 but is expected to grow by 5.6 per cent in 2021-22. Real gross value added (GVA) is expected to decline by 1.7 per cent this fiscal but record 6.8 per cent growth in 2021-22, supported by uptick in industrial and services sector activities, said the SPF survey based on response of 24 panellists. According to the CCS, consumer perception on the general economic situation, employment scenario and household income plunged deeper into contraction zone, while expectations on general economic situation and employment scenario for the year ahead were also pessimistic. "Overall consumer spending remained afloat, mostly due to relative inelasticity in essential spending ; consumers, however, reported sharp cuts in discretionary spending and also do not expect much improvement in the coming year," it added. In view of the COVID-19 pandemic, the survey was conducted through telephonic interviews during May 5-17, 2020 in 13 major cities, including Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Lucknow, Mumbai and Patna. Perceptions and expectations on general economic situation, employment scenario, overall price situation and own income and spending were obtained from 5,300 households. A third study on 'Households' Inflation Expectations Survey' said households' median inflation perception and expectations increased sharply in May 2020 as compared with the March 2020 round of the survey. Participants were expecting increasing price pressure on food products. More households expect general prices and inflation to rise over a three-month horizon as compared to the previous round. A total of 5,761 urban households participated in the survey. NKD CS ABM ABM

Consumer confidence collapses, economy may contract by 1.5 pc in FY21: RBI surveys

New Delhi, Jan 22 () India's growth rate is expected to be marginally higher at 5.5 per cent in 2020-21 against the estimated 5 per cent for the current fiscal on the back of strong policy push coupled with revival in demand, a report said.
 Citing an NSO report, India Ratings and Research (Ind-Ra) said said the slowdown is a combination of several factors including an abrupt and significant fall in lending by non-banking financial companies close on the heels of a slowdown in bank lending and reduced income growth of households coupled with a fall in savings and higher leverage.
 Although some improvement in FY2020-21 is expected, these risks are going to persist, India Ratings and Research principal economist Sunil Sinha said. 
 As a result, the Indian economy is stuck in a phase of low consumption as well as low investment demand, it said. 
 "A strong policy push coupled with some heavy lifting (even if this requires using the escape clause as suggested by the FRBM Review Committee headed by N K Singh) by the government is required to revive the domestic demand cycle and catapult the economy back into a high growth phase," it said.
 The government has announced a slew of measures recently to prop-up the economy, but Ind-Ra believes they will come to aid only in the medium term.
 The shortfall in the tax plus non-tax revenue to result in the fiscal deficit slipping to 3.6 per cent of GDP (budgeted 3.3 per cent) in FY2020, even after accounting for the surplus transferred by the RBI, it said. 
 "A continuance of low GDP growth even in FY'21 means subdued tax revenue and limited room for stepping-up expenditure. Ind-Ra believes the government will have to construct the FY21 budget in a way that expenditure is rationalised and prioritised and all avenues of revenue generation are tapped," it said. 
 While rationalising, the focus of expenditure has to be on creating direct employment and putting more money in the pockets of the people at the bottom of the pyramid, it said, adding since their marginal propensity to consume is close to one, they are likely to spend what they receive. 
 "This will support the consumption demand. Therefore, budgetary allocation to heads such as rural infrastructure, road construction, affordable housing and MNREGA must be prioritised and allocation for non-merit subsidy/expenditure less critical for growth be rationalised," it said.
Also, gross fixed capital formation (GFCF) has become government dependent, as incremental private capex has been down and out, it said, adding, despite the fiscal constraints, the government has not shied away from infrastructure spending in the past and even resorted to fund them through extra budgetary resources. 
 Ind-Ra, therefore, believes the government will continue to focus on infrastructure spending and leverage all possible options - budget, off budget including National Infrastructure Investment Fund, it said. 
 Also, since a larger part of the government capex now takes place at the state government level, it will be important to keep a tab on the state government capex as well, it added.
 With regard to inflation, it said, retail and wholesale inflation expected to be 3.9 per cent and 1.3 per cent, respectively as compared to 4.4 per cent and 1.4 per cent in the current fiscal. 
 Though oil prices are stable, retail food inflation after remaining subdued and in single digit for 70 months since January 2014, entered into double digits in November 2019 and accelerated to 14.12 per cent in December 2019, it said. 
 This means, in the near term, further monetary easing is ruled out and we may have to brace for an extended pause on the policy rate, it added.
 While observing that external environment continues to be challenging for exports due to the trade friction and protectionist policy pursued by many developed economies, it said, as a result, exports of goods and services are likely to witness negative growth of 2 per cent the current fiscal. 
 "With some breakthrough in the US-China trade talks, Ind-Ra expects external environment to improve somewhat in FY21. This is likely to help India's exports of goods and services to grow by 7.2 per cent and the current account deficit to decline marginally to USD32.7 billion, 1.1% of GDP in FY21 (FY20: USD33.9 billion, 1.2% of GDP)," it said.
 In view of these developments, Indian rupee is expected to average 73 against the dollar in FY'21, it said. DP MR

GDP to grow by 5.5 pc in FY21 but downside risks persists: India Ratings

<ul><li>Myth 1: India’s household savings are strong enough.</li><li>Myth 2: Indians factor in inflation while choosing investments.</li><li>Myth 3: Further interest rate cuts will spur consumption and savings.</li></ul>The biggest myth of all myths in India is that a person may decide to buy a home or a car just because the <keyword id="6354335" type="ORGANIZATION" weightage="20" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword> (RBI) has cut interest rates by 25 basis points or 50 basis points. The fact is a person buys any discretionary item like a home or a car only when he or she has enough savings, borrowing capacity, and reasonable certainty about the future. Right now, Indian households are running short of all three as visible in the <a href="https://www.businessinsider.in/job-cuts-at-parle-and-britannia-sales-show-indian-economy-is-in-dire-straits/articleshow/70766429.cms">slowing sales of homes, cars, and even items of daily use</a>. Amidst rampant unemployment and slow wage growth, people are eating into their savings and this is dangerous. Slowdown in consumption has been sharper in the last nine months despite <a href="https://www.businessinsider.in/rbi-cut-interest-rates-by-35-basis-points-as-growth-sputters-and-inflation-cools/articleshow/70565859.cms">four interest rate cuts by the RBI</a>, though much of it has not been passed on by the banks. If monetary stimulus was enough, there would be signs of improvement in the economy or the sentiment but there aren’t any. 
	
	
	
	
	
	
	
	
	
 <div type="image" title="7 (1)" msid="71092450" hostid="261"></div>





















 On the contrary, lending rates are coming down and so are deposit rates-- and that hurts households directly. Therefore, another interest rate cut may not be the answer to rev up the sluggish economy and household consumption. The calls for further interest rate cuts are based on certain myths. Myth 1: India’s household savings are strong enough It has been true for decades that Indian households have saved for a rainy day and it is often these savings have been a shield during dire economic crises in the past. However, that is changing for many reasons. “As investment depends crucially on a low cost of capital, reducing real interest rates need not necessarily lower savings when the demographics are favourable,” the 2019 annual economic survey argued. However, India’s household deposits in banks have declined to their lowest level in over a decade as the interest rate offered by banks declined in recent years. Household savings as a percentage of GDP has <a href="https://economictimes.indiatimes.com/markets/stocks/news/fall-in-household-savings-leads-decline-in-net-financial-savings/articleshow/71058730.cms">fallen to 17.2% at the end of March 2019</a>. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 <div type="javascript" title="Custom" contenttype="Image"><cdata><![CDATA[
<div class="flourish-embed" data-src="visualisation/667010"></div><script src="https://public.flourish.studio/resources/embed.js"></script>
]]></cdata></div>









































 Meanwhile, in the two years ending June 2019, personal loans and credit card debts <a href="http://www.forbesindia.com/article/leaderboard/profitability-improves-for-banks-but-deeper-concerns-remain/54783/1">have increased by over 58%</a>, according to RBI data analysed by Forbes. People are either borrowing money or dipping into their savings for sustenance. 
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
	
 <div type="image" title="6 (1)" msid="71092013" hostid="261"></div>









































 So, as savings depleted and loans piled on, investments have gone down. Unsold homes have increased 7% to 1.3 million units at the end of June 2019, according to an independent real estate research firm Liases Foras. However, gold prices hit <a href="https://www.businessinsider.in/10-grams-of-gold-now-costs-40000/articleshow/70838768.cms">a whopping ₹40,000 an ounce</a> last month. And that brings us to the second myth. Myth 2: Indians factor in inflation while choosing investments. In theory, demand for gold should go down when inflation is low. And price rise in India has been low for over three years. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 <div type="javascript" title="Custom" contenttype="Image"><cdata><![CDATA[
<div class="flourish-embed" data-src="visualisation/664576"></div><script src="https://public.flourish.studio/resources/embed.js"></script>
]]></cdata></div>



































 But gold is an essential part of Indian culture and tradition and even when there is a fall in demand for gold, it is relatively low. The Narendra Modi government has tried to push people away from gold and to invest in more risky financial instruments like the share market and real estate. But as of March 2018, only 8% of household savings are in equity-- though a significant jump from 3% in FY16-- according to RBI data. While the diversification can be celebrated, the market carnage in the last one year has not only dented the confidence of the small investors, it has also made them poorer. Nearly a quarter of all households in India prefer bank deposits, according to an RBI report in July 2017. The pecking order of preference is children, own business, and bank deposits. Only a small fraction of all Indian families save in pension funds, or mutual funds. 
	
	
	
	
	
	
	
	
 <div type="image" title="source of retirement funds" msid="71092488" hostid="261"></div>



















 Very few Indians calculate adjust for inflation before investing or even while evaluating salary hikes. For example, the sentiment triggered by a 10% rise in salary is more or less the same irrespective of whether the inflation rate is 4% or 10%, even though prices have a direct impact on the savings. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 <div type="Youtube" id="T4OXppVbFW0" title="Unhappy with salary hikes? Market expert Nilesh Shah explains a good way to evaluate your appraisal." thumbUrl="https://i.ytimg.com/vi/T4OXppVbFW0/mqdefault.jpg"></div>



























 A recent research by Motilal Oswal has showed that people invested less in bank deposits because the headline interest rate fell even though they may have yielded more when adjusted for inflation. "Pushing up household savings would require more efforts towards financial inclusion and possibly, incentives,” ratings agency Crisil said in a July 2019 report. As established earlier, that monetary stimulus like interest rate cuts have limited impact as an incentive. Myth 3: Interest rate cuts will spur consumption and savings Real investments, measured by gross fixed capital formation (GFCF), in the economy grew at an average of 9.2% in the last three years, at twice the rate compared to the preceding five, which included two of the infamous ‘policy paralysis’ period under the Congress-led United Progressive Alliance (UPA) regime when inflation was at scorchingly high level. However, digging deeper into the data, Motilal Oswal found that in the last three years, corporate investments grew over 7% every year compared to 12% in government investment and a measly 2% growth in household investments. This, at a time when inflation was low and interest rates were falling. The mood is sombre in most Indian homes The reality right now in India is that people are earning less and therefore the benefits of low inflation have not reached them. Small investors have lost money in the stock market. They are either borrowing more or eating into their savings for sustenance. Any further cut in deposit rates will make consumer more cautious because for most Indian families, it’s cash--whether it is at home or in the bank-- that counts. Investments, including buying a home or a car, depends on the near-term cash savings and near-term outlook on earnings. As most families are still reliant on bank deposits either for income or for a rainy day or retirement, any further cut in deposit rates will further affect savings and sentiment, and therefore consumption. The onus should now be on the government to revive investor sentiment via policy stimulus adding to <a href="https://www.businessinsider.in/nirmala-sitharam-address-on-india-economic-stimulus-live-updates-and-highlights/articleshow/70804926.cms" data-type="tilCustomLink" target="_blank">the ones Finance Minister Nirmala Sitharaman announced in late August</a>. As the renowned economist and former RBI governor Raghuram Rajan wrote in his book ‘Fault Lines: How Hidden Fractures Still Threaten The World Economy’, “the more a country finances its investment through its own domestic savings, the faster it grows. Conversely, the more foreign financing it uses, the more slowly it grows.” SEE ALSO: <a href="https://www.businessinsider.in/narendra-modi-pmeac-comments-on-indias-economic-slowdown/articleshow/70954078.cms" data-type="tilCustomLink" target="_blank">Here’s what Narendra Modi’s closest advisors have been saying about economic slowdown</a> <a href="https://www.businessinsider.in/recession-in-india-searches-spike-as-gdp-growth-hits-a-six-year-low/articleshow/70922461.cms" data-type="tilCustomLink" target="_blank">Indians were fearing recession even before data showed that GDP growth hit a six-year low</a>

You Searched For "gfcf" and got 10 results

Investments in real estate, government capex to drive India’s investment cycle in FY24

Rounak Jain

India's economic boom feels like 2003-07: Morgan Stanley

PTI

Indian private sector to take a cue from government and raise investments in fixed assets

Katya Naidu

Recovery in real estate sector likely to boost household income, says ICICI Securities

Bhakti Makwana

Slow recovery of low income households slowed down India's economic recovery: Kotak report

IANS

India's Q2 GDP growth dips to over 6-yr low of 4.5%; manufacturing, farm sectors weigh

PTI

India's GDP to contract by 5.3% due to coronavirus 'disorder', says India Ratings

PTI

Consumer confidence collapses, economy may contract by 1.5 pc in FY21: RBI surveys

PTI

GDP to grow by 5.5 pc in FY21 but downside risks persists: India Ratings

PTI

Family savings in India face the threat of more interest rate cuts

Sriram Iyer