IMF’s 7.2% growth projection for FY18, normal monsoon augur well for India auto

In what constitutes positive news for the country at large – and the Indian automotive industry – the  International Monetary Fund (IMF) has forecast growth of 7.2 percent in 2017-18 for India, which would make it the fastest growing economy worldwide. In the medium term, growth could even rise to 8 percent, says the global body. This compares very favourably to the global economic forecast of 3.5 percent in 2017.

Overall improvement in the Indian economy, which translates into positive consumer sentiment, and a bountiful monsoon can only spell good fortune for the domestic automotive industry. While the government has initiated a number of measures, particularly on the roadbuilding and infrastructure development front to kickstart the economy, good rainfall across the country will benefit rural India in a big way. As is known, the rural market contriutes sizeably to the overall fortunes of the automobile sector.  

Good foodgrain output during the kharif and rabi season will subsequently translate into higher sales of farming tractors as well as commuter motorcycles, which see a large percentage of buyers from rural India. Entry-level passenger cars as well as utility vehicles should also seen an uptick following a good monsoon. 

Apex industry body SIAM, in its FY18 outlook, has forecast growth of 7-9 percent for the passenger vehicle sector, 4-6 percent for the commercial vehicle sector, 9-11 percent for the two-wheeler sector and 4-6 percent for the three-wheeler industry. 

IMF bullish on India
In its World Economic Outlook (WEO) released yesterday, the IMF is optimistic about growth in India, particularly in comparison to a slowing China. Commenting on emerging markets and developing economies, the IMF report says: “Growth in China is projected at 6.6 percent in 2017, slowing to 6.2 percent in 2018.”

“Elsewhere in emerging and developing Asia, growth is projected to remain robust, even if somewhat lower than anticipated in the October 2016 WEO. In India, the growth forecast for 2017 has been trimmed by 0.4 percentage point to 7.2 percent, primarily because of the temporary negative consumption shock induced by cash shortages and payment disruptions from the recent currency exchange initiative. Medium-term growth prospects are favorable, with growth forecast to rise to about 8 percent over the medium term due to the implementation of key reforms, loosening of supply-side bottlenecks, and appropriate fiscal and monetary policies.

Economic activity is forecast to accelerate slightly in 2017 in four ASEAN-5 economies (Indonesia, Malaysia, Philippines, Vietnam). The fifth, Thailand, is projected to recover from a temporary dip in tourism and consumption in late 2016. Growth in 2017 is projected to be 5.1 percent in Indonesia, 4.5 percent in Malaysia, 6.8 percent in the Philippines, and 6.5 percent in Vietnam.”

Recommended policies to drive growth
The IMF report adds, “India’s economy has grown at a strong pace in recent years owing to the implementation of critical structural reforms, favorable terms of trade, and lower external vulnerabilities. Beyond the immediate challenge of replacing currency in circulation following the November 2016 currency exchange initiative, policy actions should focus on reducing labour and product market rigidities to ease firm entry and exit, expand the manufacturing base, and gainfully employ the abundant pool of labour. Policy actions should also consolidate the disinflation underway since the collapse in commodity prices through agricultural sector reforms and infrastructure enhancements to ease supply bottlenecks; boost financial stability through full recognition of nonperforming loans and raising public sector banks’ capital buffers; and secure the public finances through continued reduction of poorly targeted subsidies and structural tax reforms, including implementation of the recently approved nationwide Goods and Services Tax.”

Near-normal monsoon forecast
Meanwhile, the India Meteorological Department (IMD) has forecast a near-normal monsoon season this year. The IMD director general K J Ramesh said, “"The country will receive 96 percent of Long Period Average (LPA) with an error model of plus or minus 5 percent.”

A 96 percent rainfall means it is on the border line of normal and below normal precipitation. Anything between 96 and 104 percent of the LPA is considered ‘normal’, while under 96 percent rainfall is categorised as ‘below normal’. Rainfall of 104-110 percent of the LPA is ‘above normal’.

El Nino is expected to occur in August-September, but it is unlikely to have any major impact on the monsoon, and the weatherman expects a positive Indian Ocean Dipole (IOD), which has a strong influence on rainfall in the country.

The IMD has not issued a region wise forecast yet. Ramesh said it will make a more detailed prediction in its second forecast in June.

"In spite of prediction of a weak El Nino, the 2017 monsoon likely to be near normal. Good benefits for farmers and countrys economy," M Rajeevan, Secretary in the Ministry of Earth Sciences, tweeted.

2016 witnessed normal rainfall across the country, barring deficient precipitation in states like Karnataka, Kerala, Andhra Pradesh, Tamil Nadu, and the northeastern states.