Growth may be faltering in the second half of 2018-19

Growth may be faltering in the second half of 2018-19; at least that is what the CSO statistics are telling us. The Central Statistical Organization (CSO) has pegged the full-year GDP growth estimates for India at 7.2% for the fiscal. The real growth rate of 7.2% for the fiscal 2018-19 will be higher than the 6.7% reported in the fiscal year 2017-18. However, the first half has already reported GDP growth of 7.6%, which means the second half will see slower growth of just 6.8%. While the CSO pegged higher growth rates in agriculture, it has projected lower growth in manufacturing and in the services sector.

This could be the big BREXIT shocker if it actually happens. It is estimated that assets worth $1 trillion may shift from the UK to EU due to BREXIT. This estimate was put out by Ernst & Young as an outcome after UK leaves the EU bloc officially in March this year. The British Parliament is supposed to vote on the proposed settlement next week. The UK has for long been the gateway to Europe and London has provided the gateway to the whole of Europe. EY is estimating the immediate impact of the shift of capital out of UK at $1 trillion, although indirect impact could be higher.

With a change at the top, the RBI may finally relent on the special dividend to the government. RBI is expected to announce its special dividend payable to the tune of nearly $5.8 billion. According to a report in the Economic Times, Mr. Shaktikanta Das has not made any commitment till date but markets are expecting the special dividend of around $5.8 billion. This expectation had led bond yields higher during the day as it was a clear sign of pressure on the fiscal balance. RBI had paid $8 billion as the dividend to the government last year. This specific dividend is being paid out of the RBI reserves.

The RBI governor will be meeting with representing of shadow banks to address the all-important issue of liquidity. Shadow bank is a Chinese term to include non-bank financiers like NBFCs and HFCs. These two sectors have been under severe liquidity strain in the last few months after the IL&FS fiasco. The idea of the meeting is to ensure that adequate liquidity is made available to them. Of course, Das has clarified that any support to the NBFCs will be on merit and on a case-by-case basis. Das has been a votary of keeping the taps to the market open to avoid a liquidity crunch.

After a sharp fall, Brent crude is finally finding its feet in the bounce. Brent Crude rose by more than 2% on Monday taking the recent bounce to 10% from the lows of $53/bbl. This sharp rally from lower levels has been led by hopes of a trade rapprochement and expectations that the OPEC supply cut of 1.2 million bpd would be eventually increased. However, in the midst of this bounce in oil, Goldman Sachs has gone ahead and downgraded its oil price estimates by 10% for 2019. Goldman has scaled down its Brent Crude forecast for the year 2019 from $70 to $63 and has simultaneously cut its forecast for the WTI by more 15% to $55 in the full year. Goldman’s downgrades of oil price targets are based on strong shale supplies from the US and that the trade war could lead to a real worry on the growth front.

The newly split state of Andhra Pradesh under the leadership of Chandrababu Naidu has received the single largest FDI flow of $3.5 billion. Asia Pulp and Paper Group of Indonesia will be investing in setting up the single largest paper mill in the world in the Prakasam district of Andhra Pradesh. The paper mill will have a capacity of 5 million tonnes per annum and will be the largest single facility in the world. Apart from benefiting nearly 50,000 pulpwood farmers, this FDI investment will also create nearly 15,000 jobs. This should be a boost for the struggling state of Andhra Pradesh.

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