India's economy is showing signs of recovery driven by increased public spending, strong urban consumer demand, and manufacturing growth. Three months of solid industrial growth, pickup in investment, robust indirect tax collections, and signs of growth in mining suggest government measures to boost the economy through reforms and infrastructure spending are having an impact. Going forward, falling interest rates, foreign investment, and increased spending ahead of pay increases are expected to further fuel economic growth. The pace of recovery is gradual but trends are positive across many sectors.

1. Economy Poised for Takeoff
as Spending Surges
Industrial growth, signs of investment pickup & indirect tax kitty hint
at rebound

2. Contd…
India's economy may be about to turn the corner on the back of robust public
spending that's beginning to have an impact on the ground coupled with strong
urban consumer demand, economists and government officials said.Three months
of sound industrial growth driven by manufacturing, signs of a pickup in
investment, robust indirect tax collections and indications of a mining sector reboot
suggest that the government's attempts to revive the economy through reforms
and higher public capital spend are working.
Going ahead, the tailwinds of falling interest rates, big foreign inflows and a further
strengthening of consumer demand in anticipation of the Seventh Pay
Commission's award should propel the economy forward, said the analysts and
officials.Helping this along will be the festive season bump along with the
government chipping away at issues with steady reforms. “We are on track...
acceleration switch has been pressed... We are pushing ourselves to move towards
high-growth trajectory,“ Department of Industrial Policy and Promotion (DIPP)
secretary Amitabh Kant told ET.

3. Contd…
Kant pointed to a number of policy decisions that have already been taken in this
regard. These include further freeing up the foreign direct investment (FDI) regime,
bringing consistency and predictability to tax policy and pushing hard on
infrastructure projects, particularly in roads and railways. “The key challenge was
liquidity, particularly in the infra sector and the government has done its bit by
boosting capital expenditure in roads and railways,“ said Kant, who has been
spearheading the Centre's initiative to make doing business in the country easier as
well as the Make in India campaign, resulting in the increased flow of foreign
investment.
The government has sought to press ahead with policy changes despite resistance
from the opposition on some key changes. A senior finance ministry official said the
pace of reforms will be maintained. “We are seeing ample signs of recovery firming
up,“ said Sonal Varma, India economist at Nomura Financial Advisory & Securities
(India) Pvt Ltd. “Last twothree months signs have been more visible.“

4. Contd…
The rate at which the revival is taking place is gradual, said another expert.
“Recovery is definitely setting in but the pace is slow. In this slow pace, most
of the data will not look positive; there could be ups and down,“ said Sunil
Kumar Sinha, principal economist, India Ratings & Research. “What is
important is to see the trend.“
GLASS HALF FULL
A number of indicators seem to be pointing to a sustained pickup though a
broad-based recovery is still not secured, largely because of low capacity
utilisation holding back corporate investments, experts said.
Manufacturing output has expanded for the last 10 months with growth
hitting a near three-year high in August at 6.9%. Airline travel rose 18.7% in
August, another indicator pointing to improving consumer sentiment, apart
from an increase in automobile sales.

5. Contd…
Cement dispatches have picked up, as construction of highways gets underway and some
stalled projects resume. “There are signs of tepid but unidirectional recovery,“ said Abheek
Barua, chief economist. HDFC Bank. “There is a sustained positive trend in many sectors...
We are perhaps eightnine months away from significant recovery. One thing doing well is
urban consumption though the rural piece continues to be a problem area.“ Industrial
production growth climbed to a near threeyear high of 6.4% in August and the expansion
in the two months of the second quarter is significantly faster than the average 3.1% in the
April-June quarter. That suggests the economy has left the disappointing first quarter
behind. GDP expanded 7% in April-June quarter, lower than 7.5% recorded in the preceding
three-month period.
Though the Purchasing Managers' Index (PMI) for September has been lower, better
indirect tax collections, particularly excise duty, and higher car sales suggest economic
momentum ahead of the busy second half of the year that kicks off with the festival
season.Excise is levied on goods at the factory gate. Indirect tax collec tions rose 35.8% in
September, and by a healthy 11.5% after stripping away the impact of addition al tax
measures. Car sales rose nearly 10% in September.

6. Contd…
Inventory stocking in anticipation of festival buying should push manu facturing, with the
decline in interest rates providing a timely boost. Most banks have cut in terest rates in the
range of 25-40 basis points, bringing home loans to around 9.5%. That follows the Reserve
Bank of India cutting the policy rate by a more-than-expected 50 basis points on
September 29. A basis point is one-hundredth of a percentage point.
“Data for capital goods and consumer goods production over the past one year on a
monthly basis may have gone up and down but the trend line is pointing northwards,
which is encouraging,“ Sinha said. “We are not in a stage where everything has fallen in
place...Recovery unlike 2008 would be Ushaped.“
The likely stimulus from the upcoming Seventh Pay Commission, further monetary easing
of 25-50 basis points, the thrust on public investments coupled with structural reforms
such as the goods and services tax (GST) and ease of doing business are likely to aid the
process of recovery, said Citigroup's Anurag Jha in a note. GST is set to be rolled out on
April 1 next year but key preparatory work remains to be completed.

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