Persistent Uncertainty

Dear friends,

Financial Year 2013-14, a difficult year for the auto market in India, is past us. While the auto market has been hoping eternally that the buoyancy will return soon, all such hopes have turned out to be a mirage. The advent of FY 2014-15 has renewed hopes and expectations of an early turnaround in vehicle sales. However, as of now, the situation on the ground remains hazy with no tell-tale signs of an early revival of the market. The political uncertainty amid ongoing general elections is adding to the worries inasmuch as there are no clear signs of the contours of the next Government at the Centre. Unless a strong and decisive Government at the Centre is formed after the general elections to give impetus to the economic growth, the recovery remains a distant dream.

Political uncertainty apart, key microeconomic indicators are not enthusing enough to suggest that a significant upward swing in economic growth or auto market is round the corner. It is, however, not to suggest that there is a doom and gloom. While the Indian economy is witnessing a modicum of stability, there are no straws in the wind indicating that it is ready for take-off once again anytime soon.

As per the latest figures released by the Central Statistics Office, the Index of Industrial Production (IIP) for February 2014 was around 1.9% lower than the same period last year. The manufacturing went down as much as 3.7% compared to February 2013. The IIP had returned to the positive growth path with a moderate 0.8% rise in January 2014 after three months of negative growth.  The return of industrial production to the negative territory is extremely disappointing and is much below the expected industrial potential. It is also disconcerting to note the negative growth of the manufacturing sector for the fifth consecutive month, indicating a downturn in the business cycle. What is of additional concern is that the negative IIP growth has happened despite the favourable base of last year. 

The significant shrinkage in the production of capital goods and consumer durables shows that industrial revival is far more difficult in the present scenario. The negative growth of manufacturing has got serious implications for the overall growth, employment and trade balance as the lack of depth in manufacturing has been affecting India’s economic security and stability. The latest numbers suggest that the pain is not going to end so fast and the economic revival will take time.

Adding to the woes is the slowing export performance of late. India missed its goods export target for 2013-14, falling short of the annual target by about USD 13 billion, with exports declining for the second straight month in March 2014.  

The cold comfort is that for the FY 2013-14, trade deficit, however, was about 25% lower that the last fiscal. The narrowing trade deficit should come as a relief for the Government, which has been struggling to keep the current account deficit in check to avoid a foreign exchange crisis. There may be cheer on the deficit front but there is little optimism on export front due to continuing global slowdown, particularly the slowdown in Europe. 

India weathered a mini economic crisis in July/August 2013, when there was mayhem in the market with Rupee touching 69 to a dollar, inflation remaining stubborn at uncomfortable elevated levels and crude oil prices displaying volatility. Though the economy is showing a semblance of stability currently, there is no significant uptick expected in near term. It means that the auto market, the fate of which is intertwined with the pace of economic growth, cannot expect to bounce back in near future. The multilateral agencies, though bullish about the long-term prospects of the Indian economy, have estimated moderate growth in the range 5–6% in the current and next fiscals, which is modest in the backdrop of heady growth rates of 8–9% achieved not long ago.

The World Bank has projected an economic growth rate of 5.7 per cent in fiscal year 2015 for India on the back of a more competitive exchange rate and many large investments going forward as against 4.8 per cent growth in the FY 2013-14. Another multilateral agency IMF has forecast that Indian economy would recover from 4.4 per cent growth in 2013 to 5.4 per cent in 2014. 

The Planning Commission may lower its average GDP growth target for the 12th Plan period (from 2012-13 to 2016-17) to 6% when the new government carries out a mid-term appraisal later this year. The UPA government projected GDP growth for the 12th Plan at 9% in the ‘Approach Paper’, and cut it to 8% following the European debt crisis and the domestic slowdown. 

Fitch Ratings expects the economic growth to increase from 4.7% in 2013-14 to 5.5% this fiscal and 6% in the next year, warning that high fiscal deficit and inflation remain major challeges.

We are hopeful that the installation of new Government at the Centre in May/June will set the economic policies in motion, boosting confidence and giving impetus to the economic activities. However, there are two difficult tasks for the new Government, viz. (a) restoring fiscal prudence; and (b) countering the spectre of El Nino looming large on the horizon.

As we all know, in the election year, the populism takes the driver seat and fiscal prudence is put on the back burner. The state of Government’s finances is not a happy one. The government is likely to miss its revised indirect tax revenue target for the 2013-14 fiscal by about Rs. 17,648 crore on account of the economic slowdown. Government's fiscal deficit in the 11 months through February 2014 has overshot the revised estimates of       Rs. 5.24 lakh crore for this fiscal. Central government’s fiscal deficit is 114.3 per cent of the entire year’s budget estimate (BE) during April-February 2013-14. During this period, plan expenditure and non-plan expenditure have recorded a rise as compared to the same period of previous year. On the other hand. government revenue collection has recorded a fall, leading to the worries whether the fiscal deficit would be contained at the targetted 4.8% of GDP in the FY 2013-14.

Another major challenge for the new Government would be to counter the threat of El Nino phenomenon, which has serious adverse effect on the monsoon. If threat becomes a reality, the agriculture production is likely to suffer, negating all plans and projections. Needless to mention, though agriculture sector accounts for 15-17% of India’s GDP, its spin-off effect on inflation, industrial activity and economy as a whole cannot be overemphasized. It is, in fact, the agriculture growth that propels the economy.

All said and done, the economy is not in bad shape currently as it was 8-9 months ago. The rupee has stabilized, so has the inflation, although prices are showing upward movement lately. The stock market is bullish with FIIs coming in drove and investing in Indian market again. Likewise, the crude oil prices remain, by and large, stable. I am sanguine that with economy surely and steadily picking up, auto market will regain buoyancy in the second half of the current fiscal. Hopefully, the people will give a clear mandate and not a fractured one.

Regarding FADA’s activities, I must confess that the month gone by has not seen much of action, as all my fellow council members were busy with meeting their year-end targets and closing their annual accounts for the year 2013-14. 

After a breather, we are back again on our feet. After a series of training & management development programmes across the country, the next training & development programme, in association with Prashaste Training Academy under the aegis of FADA Academy, is going to be organized in Bangalore on 25th & 26th April 2014, which will be followed by two more such programmes in Delhi and Hyderabad in May and June, respectively.

As informed in my previous column, we are in dialogue with a rating agency so that my fellow dealers could avail rating services for accessing bank loans at attractive rates.

While we had earlier proposed a council meeting some time in April, the meeting is now rescheduled for May 2014, as we would like to synchonise the council meeting with the presentation of Life Time Contribution Award to Mr Ratan Tata by a team of FADA office bearers in person at his office in Mumbai.

FADA has also drawn up elaborate plans for celebration of its Golden Jubilee Year in style some time in September 2014 at the time of its Annual Session and AGM.

You will be hearing about these events as and when the programme is finalized.

Look forward to your suggestions and inputs for making the activities of FADA more meaningful to its constituent members.

With best wishes,

Yours sincerely,

Mohan Himatsingka

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