Indeed, the M&HCV and UltraTech/L&T story seems more consistent with the numbers coming out of banks and financial institutions on loan growth; RBI’s slightly robust credit growth numbers need to be viewed carefully since they include a new segment of demand—commercial paper—which has moved to banks where interest rates are lower. A Kotak Institutional Equities study shows sanctions for fresh projects in Q1FY14 were R22,000 crore as compared to R41,300 crore in the same quarter in FY13, R74,900 crore in Q1FY12 and R1,13,900 crore in Q1FY11. In the case of ICICI Bank, the corporate loan book, results just out, show corporate loan growth was just 11% yoy. This story is also consistent with the latest PMI numbers for October—though at 49.6 it shows industry continues to contract, this is the same as in September and slightly better than in August.
In other words, there is definitely some sort of recovery—exports are positive for the third consecutive months and in double digits—but it is very narrow. While a good monsoon augurs well for growth, the very high fiscal deficit means the government has to quickly start slowing its expenditures and that will have a contractionary impact on GDP—given how the September fiscal deficit was just R8,000 crore more than in August while it grew by around R70,000 crore in each of the past few months, this has already begun to happen. Which is why, in the best case scenario of a 5.2-5.7% farm growth—projected by CACP chief Ashok Gulati—this year’s GDP is unlikely to rise much above 5%. So, while GDP could grow at less than last year, going by the professional forecasters’ survey reports to the RBI, it could at best be marginally higher. An investment recovery will change everything—expect one in telecom if policy announcements within the next few weeks are friendly—but a larger recovery will have to wait for the next government. And even if all goes well, India Inc needs some time to work off its large debt overhang.