Are we finally seeing signs of a recovery in the economy?

Indian macro data flows have been mixed in the last few months. At times growth has faltered and at times inflation has been under control. Overall, it has been very difficult to judge which way the economy is actually headed. But finally, we appear to have a combination of data points that are hinting at a genuine economic recovery in India. All these data points have come out very recently and that is why their synchronizing is a lot more meaningful for the economy.

Core sector flatters…

Core sector growth at 6.8% was much better than originally estimated. But what is more gratifying is that the growth has been led by steel and cement. Of course, steel demand has been driven by a global uptick in demand but the cement demand is an indicator of pick-up in construction activity. Even if you consider that a good share of construction is being driven by the government, one cannot overlook two very important factors. Firstly, both steel and cement have very strong downstream externalities. That means an increase in demand for cement and steel normally has a multiplier effect on GDP. We may see the impact in the fourth quarter but at least the Greenshoots are surely there. Secondly, a revival in steel and cement demand also hints at a possible revival in the capital cycle, which has been the missing link in the India growth story.

PMI shows a sharp uptick…

The PMI Manufacturing and the PMI Services for the month of December came in much better than expected. Of course, the PMI Services just managed to creep above the 50 mark indicating a minor expansion. But, the real story was in factory output represented by the PMI Manufacturing. At 54.7, the PMI Manufacturing reflects an expansion that has not been seen in the last few years. What is more important is the nature of this factory output growth. The growth has been driven by a combination of higher output, higher raw material investments and higher labor employment. All these point towards a greater degree of confidence among business, which is a positive.

Don’t forget auto numbers…

The big surprise in the last few months has been the sharp turnaround in the auto numbers. There are worries about demonetization, GST and the shift to BS-IV norms. But the auto sector has managed to trump all these challenges and show consistently robust growth month-after-month. In the month of December we have seen a sharp uptick in growth not just in consumer autos but also in tractors, heavy commercial vehicles (HCVs) and MCVs. That surely points to a recovery in factory demand. So, finally we have 3 data points hinting at an economy recovery. Now, it is about sustaining this trend! ©