Midnight News Update – Sep 01st 2017
The GDP numbers for the first quarter ended June 2017 came in almost 100 bps lower than the Reuters consensus estimate. With GDP growth at 5.7% and the GVA growth at 5.6%, the pressure of demonetization and GST appear to be clearer than before. The biggest casualty in GDP was the manufacturing sector which grew at just 1.2% compared to 10.2% in the first quarter of 2016-17. This was largely led by a negative -0.8% de-growth in manufacturing with SMEs feeling the heat. This also raises doubts about the GDP advantage that India enjoyed over China.
The core sector growth for July came in slightly better than previous month at 2.4% although the number was almost 400 bps lower compared to July last year. Most of the sectors like coal production, oil extraction, refined products and cement came under pressure. The pressure was also seen due to de-stocking ahead of the GST implementation. Steel and Natural gas were the two core groups that showed positive growth largely due to favourable government policy framework. The core sector number is critical as it accounts for over 40% of the composition of the monthly IIP figures.
In what could be a jolt for the EU, Japan and UK have agreed to put in place a liberal trade agreement immediately after BREXIT kicks in 2 years from now. Theresa May had made a visit to Tokyo to reassure bankers and Japanese businesses and garner support for a trade agreement outside the purview of the EU. May had met up with the Chiefs of Japanese giants like Toyota, Nissan and Hitachi. Once BREXIT kicks in, Britain will no longer enjoy preferential status within the EU and hence needs to sign independent agreements with other countries within the next 2 years.
According to a study by CARE, India’s exports are likely to grow by 10% in the fiscal year 2017-18. Global trade had lagged for almost two years due to the oil shock but things have started picking up in the last few months. However, the big challenge for India seems to be that imports have been growing much faster than exports resulting in a widening trade deficit, which is now running at over $150 billion per year. However, the INR strengthening to the 63-64 range will continue to be a dampener for exports. The first quarter trade deficit is already back to the 2014 levels despite oil being almost 60% lower.
The government is in talks with the RBI for a higher dividend payout this year. The government had budgeted for a dividend of Rs.58,000 crore but got just Rs.30,659 crore as dividend due to the higher costs of demonetization that the RBI had to bear. The dividend for the year 2016-17 was less than half of the dividend that the RBI had paid out to the government in the previous fiscal year. For the full year, the RBI had a surplus of Rs.44,000 crore of which a little over Rs.13,000 crore was transferred to the Contingency Fund. This lower dividend could put the government in a muddle as the revenues are already strained and the fiscal deficit has almost touched 95% of its full year limit. The government also has a huge bill in the form of welfare expenses and farm loan write-offs.
The Supreme Court has ordered status quo on the stake of the Singh Brothers in Fortis Healthcare till October 31st 2017. The Supreme Court is currently hearing a plea by Japanese firm, Dai-Ichi Kangyo, which has accused the Singh brothers of suppressing critical information at the time of the acquisition. It may be recollected that that Dai-Ichi had acquired Ranbaxy from the Singh Brothers in 2007 before it was eventually sold at a loss to Sun Pharma. Singh Brothers have already reduced their stake in Fortis Healthcare from 52% to 37%. Dai-Ichi had won an Rs.2560 crore arbitral award in a Singapore court.
