Indian credit data shocker

On June 12, the Reserve Bank of India had released its monthly credit bulletin. The spreadsheets related to bank credit can be found here and here. They make for very sobering reading. Make that ‘worrying’.

Sonal Varma of Nomura had told me the other day that food credit had slumped. You can see it here. It was 888 crores of rupees in April 2016. It had slumped to 393 crores of rupees (one crore = 10 million) as of March 31, 2017. It had improved to 485 crores as of April 28. Food credit is disbursed by banks to the Food Corporation of India (FCI) and various state government agencies for buying, stocking and distributing food grains. Quite why food credit should have slumped y/y needs to be figured out.

(A friend of mine pointed out that the Government had approved loans to the Food Corporation of India from the National Small Savings Fund and also done some advance release of the food subsidy amounts due to it, reducing the need for FCI to resort to bank borrowing. See here and here.)

Credit growth to industry – small, medium, large – is down 1.0% y/y and is down 2.1% YTD. Of course, only four weeks had gone by in the new financial year. Personal loan growth is the sole ‘bright’ spot registering an annual growth rate of 14.8%. Credit card outstanding is up 32%. Vehicle loans are up 14.9% and other personal loans are up 23.7%. Is this something to celebrate or brood over? I am inclined towards the latter. It is an unhealthy and unbalanced economy.

On the allocation of credit to several sectors within the ‘Industry’ category, most of them show contraction in credit growth, unsurprisingly, on a y/y basis. Only petroleum, chemicals, rubber and plastics show positive growth. Credit growth to telecom is down 11.9%!

Ajay Shah had written recently in ‘Business Standard’ on Indian investment growth or, rather, the lack of it:

What do the micro datasets say? We construct indexes covering all non-financial non-oil listed companies. Annual sales growth was above 20 per cent nominal from 2002 to 2012. This has dropped to 5 per cent nominal from 2012 to 2017. Annual operating profit growth was also above 20 per cent nominal per year from 2002 to 2012. From 2012 till 2017, this has also dropped to 4 per cent nominal per year. Expressed in real terms, both measures declined slightly over this five-year period.

The CMIE Capex database tracks all investment projects. From 2012 to 2017, the nominal growth of the value of projects under implementation is 0. Expressed in real terms, this is negative growth. [Link]

His article and his arguments struck a chord in me.

If one thought about it a bit longer, we feel both sorry for the government and also angry. They have done a lot of far-reaching changes. But, they had not fully thought through the social and economic implications of what they were doing. They were doing structural reforms, alright: Note-ban, benami transactions bill, real estate regulation bill, Tax amnesty schemes, tax raids, now GST. These have come on top of the RBI turning the screws on NPA under Raghuram Rajan and now the new bankruptcy bill, etc.

All of these are upending the traditional methods of doing business and there is uncertainty and lots of it. They are necessary and they will do good in the long-term. But, they do mean short-term pain. The government must have really brainstormed before the budget as to what it can do – in many areas – to offset the uncertainty with ‘feel-good’ measures. It could be not just the macro economy. It could be in many other areas – Education, Social Policies, Irrigation, Privatisation and, of course, tax reforms, corporate tax rate reductions (promised in the previous year’s budget presented in Feb. 2016) and labour cost reductions, etc.

They did not do that. The budget for 2017-18 was too pedestrian. Plus, the crisis in the banking system has dragged on.

On Monday, one read that the Department of Telecom had advised the Ministry of Finance that revenue from the sector would be down by as much as  38%, citing severe financial stress in the industry. Oops! One must add this to the stresses that are building up on the general government deficit.

The communication makes for sombre reading:

The telecom sector is under severe stress because of “rapidly declining revenues” of all the major telecom operators, the telecom department’s highest decision-making body said in a 1 June letter seen by Mint.

In the letter, the commission’s member (finance) Anuradha Mitra said that the non-tax revenue target for the department of telecommunications (DoT) may be revised to Rs. 29,524.15 crore from a projected Rs. 47,304.71 crore. [Link]

Forget about cricket. Worry about the economy. In any case, Aamer Sohail made some sense, actually, on the cricket fortunes of his team.

Amidst these relentless bad news, India’s external balance situation is not a cause for concern. That ‘non-negative’ state of affairs is a good thing. India’s Balance of Payments (BoP) statistics for 2016-17 shows a merchandise trade deficit of USD112.44bn. India’s GDP in US dollar terms, based on the most recent estimate, is 2.2644. That is about 5% of GDP. That is not too bad. However, based on the latest May 2017 trade balance report, India’s current annual run rate of trade deficit is around 7.5% of GDP in the current fiscal year. Gold imports have surged again. Hope GST brings it down.

The overall current account deficit itself was only 0.7% of GDP in 2016-17, lower than the deficit ratio in 2015-16. Net FDI inflows were almost unchanged from 2015-16 (USD35.7bn vs. USD36.0bn in 2015-16). You can see the highlights of the BoP report here.


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