CMIE pegs down GDP forecast to 7.8%
"A sharp downward revision in the forecast for the mining index from 4.4 percent to 3.2 percent, manufacturing sector from 7.5 percent to 6.9 percent and electricity from 9 to 8.7 percent has led to a further decline in our GDP forecast for this fiscal from 7.9 earlier to 7.8 percent," CMIE said in its monthly report here.
Earlier, the Reserve Bank had also reduced its forecast for real GDP growth sharply from 8 percent to 7.6 percent. The rating agency Crisil has also revised its growth estimate from 7.7-8 percent to 7.6 percent.
"The data releases continue to bring in news of an economy that seems to be in trouble. The index of industrial production growth has slowed down to 2-4 percent and the wholesale price index-based inflation growth has remained riveted to 9.5 percent in spite of sustained efforts by the RBI to rein in inflation by raising interest rates," the agency cited as its reasons for the sharp downturn in the economic growth.
"The persistent fall in the IIP and the high inflation rate almost seem to suggest that the economy is headed towards stagflation," it warned.
However, this is clearly refuted by the robust growth in sales of companies, which grew by a handsome 25 percent in the first half of the year.
Sales of manufacturing companies adjusted for inflation indicate that the IIP under-estimates growth in the manufacturing sector by about 33 percent. In the first half, the real sales of manufacturing companies grew by about 9 percent, indicating robust demand for industrial goods, it said.
Profit margins of the corporates have declined because of an increase in raw material cost and interest rates, but these are still robust and way above the low margins seen in the years 1999 to 2002, the report said, adding the net profit margin of the listed non-finance companies fell to 6.4 percent in June 2011, but between March 1999 and December 2002 they never touched 6 percent.
The performance of the corporate sector is sharply at variance with what the two principal official statistics- the IIP and the inflation seem to indicate, CMIE said.
Growth in corporate sales indicates that consumption demand continues to grow well. Kharif sowing this year was higher than last season. Agricultural production is expected to grow by 2.9 percent after a robust 6.6 percent growth last year. This again, indicates robust domestic consumption demand in FY 12, CMIE said.
The lack of availability of coal has pulled down the mining index and has also led to thermal projects getting delayed. This has pulled down the electricity generation forecast. Consequently, the outlook for industrial growth has moderated substantially, CMIE stated.