The GDP growth for the quarter ended September came in relatively higher at 6.3% compared to 5.7% in the June quarter. The GVA (gross value added) excluding the impact of taxes and subsidies, grew at 6.1%. Farm growth remained extremely muted at 1.7% but growth in manufacturing and services at over 7% was definitely gratifying. The turnaround in the GDP growth is surely positive but it is not clear if the impact of GST is factored into these calculations as that is more likely to show up in the December quarter numbers. For now, the manufacturing growth may be reason to celebrate.
The OPEC meeting that concluded on November 30th had some interesting takeaways. On the one hand, it has been decided by the OPEC nations and Russia to extend the supply cuts till the end of 2018 at the rate of 1.8 million bpd. However, the OPEC nations along with Russia have also signalled that there may not be further extensions in the supply cuts if the demand/supply equation is satisfactory and the oil demand perks up by then. In all likelihood, the oil demand is expected to peak up once the US tax cuts start taking and effect and higher growth in the EU region also starts impacting demand.
The Dow Jones crossed the all-time high of 24,000 after there was tangible progress in the passage of the tax reform legislation. The tax bill has been stuck for quite some time after the Republican Party internally also disagreed on most points. The tax rules were seen to be extremely tilted in favour of the rich and were likely to negatively impact the common American. However, with John McCain gave his endorsement, global markets are already betting on the Tax Bill getting through at the senate. The sudden strength in the US Dollar also indicated at the tax bill moving towards a decisive vote.
On a day when the GDP number came in at an encouraging level, the fiscal deficit came in at 96% of the full year target, something that spooked the Nifty and the Sensex leading to the massive 450 points sell-off in the BSE Sensex. The centre has already touched 96% of its full year forecast of fiscal deficit of Rs.5.46 trillion in the first 7 months. Even as government spending has gone up, the revenues have been constricted by a slowdown in GST collections. This opens up the real possibility of the government reneging on its fiscal responsibility commitments and that could be negative for India ratings.
The troubles for the Reliance ADAG group appear to be mounting after IFCI initiated insolvency proceedings against the Anil Ambani owned, Reliance Naval & Engineering Ltd at the NCLT Ahmadabad. IFCI had lent Rs.60 crore to Reliance Marine & Offshore Ltd, a subsidiary of Reliance Naval. Reliance group has stated that there was little merit in the IFCI case as they were unsecured creditors and even the 25 secured creditors of Reliance Naval had requested IFCI for an out-of-court settlement. Earlier the China Development Bank that accounts for 50% of the total borrowings of RCOM, another Anil Ambani group company, had already initiated insolvency proceedings against RCOM. Reliance Naval is already undergoing debt restructuring that has been initiated by IDBI Bank.
Core sector growth for the month of October 2017 dropped to 4.7% largely due to a subdued performance by the cement, steel and refineries segment. This is sharply lower than the level of 7.1% clocked in the same period last year. Core sector consists of 8 key sectors including Coal, Crude Oil, Refinery Products, Natural Gas, Steel, cement, fertilizers and electricity. The core sector number is important as it accounts for over 40% of the IIP growth and is an amalgam of all the basic infrastructure industries. To a large extent, the uncertainties surrounding GST were responsible for the same.
