Analyses&Comments by BR Research
Fair and square growth
Finally, the GDP growth crossed 5 percent for the first time in ten years. Isnít it time to sacrifice a black goat? The provisional number of FY17 GDP is at 5.28 percent against the full year target of 5.7 percent and the last year growth of 4.5 percent.
Unlike, previous two years, in FY17 the industrial (and in turn services growth) is broad-based and not on the clutches of government support. For instance there was no Apna Rozgar scheme; or additional supply of gas to fertilizer to spur one time growth as it was the case in past two years.
It seems like this time the growth is real; perhaps a bit under reported, as the sectors like cement, auto, OMCs, electronics, retail and trade are growing at a very healthy rate. No doubt the economic vibrancy is here. And the momentum is picking up.
The agriculture growth rebounded to 3.46 percent from 0.27 in the previous year. The major shift is in major crops. Within major crops, cotton has come back Ė last year cotton ginning was down by 22.1 percent, but it has partially recovered by 5.6 percent this year. Yet the sector is not out of woods; and so is the fate of textile exports.
There were suspicions in last yearís computation of cotton ginning; but this time the estimates seems fair. The livestock, which contributes half of agriculture output, grew by 3.4 percent. And it may not be fully recording the corporatization and technological innovation in milk and meat segments.
The industrial sector growth slowed down a bit to 5 percent from 5.8 percent last year. Mining and quarrying fell, and electricity and gas distribution slowed down, too. The good news is that manufacturing is picking up, even without any support of government subsidized scheme, as the growth stood at 5.27 percent versus 3.66 percent last year.
The LSM is up by 4.93 percent (FY16: 2.94%), as the industries catering domestic demand are upbeat, while those engaged in exports are struggling. Food and beverages are looking up, sweetened by sugar overdose while tobacco is a casualty of excessive taxation. Pharmas (8.7%) are doing well as health care spending is picking up.
The automobile double-digit growth story continues with or without government schemes. Tractors are super performers while trucks are not much behind. Two wheelers are consistent performers; and busses are catching up, too.
Electronics growth is demonstrating consumer extravaganza, with a 15 percent growth. White good businesses are milking retail demand while the electric fans are catching up. Steel is iron strong as the duty structure is restricting imports Ė the sector grew by 17 percent. Cement also kept its upward trajectory Ė up by 7.2 percent. However, chemicals are down as probably cement is used more in road construction and paint is of less use. Nonetheless, construction is creating many jobs and grew by 9 percent on top of last yearís 15 percent jump.
The sob story is of exporting sector. Textile remained stagnated for yet another year and so is the story of textile exports. Leather is also cutting a sorry figure. The refunds issue and overvalued currency are apparently making cash-strapped exporters uncompetitive.
Services sector is the heaviest segment. It has grown by 6 percent and is responsible for 3.5 percent of GDP growth. Within it, the biggest contributor to overall economic growth is wholesale and retail trade, which has grown by 6.8 percent while contributing 1.2 percent to GDP growth.
The retailing boom is visible to common man; the big guns are building retail portfolios in the form of mega malls, fashion brands, and food chains. The textile exporters are looking inwards and making a footprint in value-added fashion for domestic market. And in the process raw material is being imported. The issue is that consumer demand is growing higher than domestic production and part of the demand is met by imports while not much for exports. That is scary.
The 10.8 percent growth in finance and insurance is mysterious. The sector GDP is commuted by income approach and the major chunk of the segment is in banking, whose net income was flat in CY16. Its contribution to GDP is 0.35 percent and there might be some error in computation. Government general services and other private services have grown by 6.9 and 6.3 percent respectively. There might be case of a bit under-reporting in other services as anecdotes suggest higher growth in many sub-segments.
The nominal GDP is now around $320 billion, up from $284 billion last year. Thatís an estimated growth of 12-13 percent in dollar terms Ė not bad. Yes, the currency might be overvalued to inflate dollar number; but a few of modern services are also not properly incorporated in GDP. Letís wait for the numbers once the GDP rebasing is done by end of 2018. Perhaps, by then, currency would also have depreciated.
GDP growth under PML-N
(selected items) FY14 FY15 FY16 FY17
GDP (at factor cost) 4.05 4.06 4.51 5.28
Agriculture 2.5 2.13 0.27 3.46
Major Crops 7.22 -1.62 -5.47 4.12
Livestock 2.48 3.99 3.36 3.43
Industrial 4.53 5.18 5.8 5.02
Manufacturing 5.65 3.88 3.66 5.27
Large Scale 5.46 3.28 2.94 4.93
Small Scale 8.29 8.21 8.2 8.18
Slaughtering 3.38 3.34 3.61 3.61
Construction 5.96 7.26 14.6 9.05
Services 4.46 4.36 5.55 5.98
Wholesale & Retail Trade 4.77 2.6 4.25 6.82
Transport Storage & Comm. 3.9 5.07 4.82 3.94
Finance & Insurance 4.31 6.35 6.12 10.77
Data source: PBS
Has populism really peaked?Has populism really peaked?