A quick look at the economy as we enter 2018

A quick look at the economy as we enter 2018

As we say goodbye to 2017 and get ready to welcome 2018, what is the economy looking like? Will 2018 bring more cheer? And what will the government do in the coming year. Here is a snapshot…

1) The consensus is that the worst effects of GST and demonetisation on the economy are over and GDP will keep increasing from here on. But most commentators are cautious about the speed of rise, and many expect the recovery to be slow, rather than a bounce back.

2) GST collections in October and November have been dropping – which puts pressure on the government’s fiscal deficit target. Unless the government stops spending on all ministries, the lower revenue figures could be a big problem. It is expected that GST will take at least one more quarter to settle down before the real trends on indirect tax revenues will be apparent.

3) The government has  told the tax department to push for higher direct tax collections from companies and individuals to make up for indirect tax collection drop after GST. Both direct and indirect tax collections are roughly in the range of Rs 8.5 – 9 lakh crore in a normal year. It seems unlikely that increased direct tax collections this year will make up for the indirect tax shortfall.

4) Manufacturing seems to be recovering a bit, but not very quickly. Some sectors are doing better but many sectors are still lackluster. Also, the jobs scene is still dismal.

5) Stock markets have been on a roll, and the markets have been rising even though most cautious commentators say the equity prices are currently overvalued and in dangerous territory.

6) Exports have started improving, and the government plans a number of steps for labour intensive export sectors to boost their performance. Once GST settles down, it should improve further.

7) Crude oil prices are hardening and that is putting a lot of pressure on government’s import bill and also on the current account deficit. It also is creating a pressure on inflation.

8) Going forward, the government is expected to focus very strongly on improving rural/farming incomes and alleviating rural distress and also spend a lot on infrastructure in the hopes of giving the GDP growth and even rural consumption a boost… that is expected to be the focus of the Budget in February.

9) The Government is also expected to unveil major initiatives that can boost jobs

10) Private investment in greenfield projects is still sluggish… and that is  a big worry.  A recent roundtable of senior CEOs and CXOs in Mumbai had most CEOs (bar a couple) saying that investment would not pick up quickly. In too many sectors, the capacity utilization is still in the 70 per cent range, and most people will not build new factories unless it reaches 85-90 per cent.

11) NPAs remain a problem… Now a lot of private sector banks also have higher than ticipated NPAs because of the RBI’s guidelines. Also, the NCLT route to cleaning up NPAs is not working as well as it was supposed to, though it means the books are cleaned up. The twin balance sheet problem remains.

12) State finances are mostly under pressure, especially in those states which gave farm loan waivers. The pressure on state finances is expected to increase next year because of agricultural packages that will be announced.

Courtesy : Prosenjit Datta