Mains Paper 3: Economy
Prelims level: FMCG
Mains level: Industries growth and infrastructure
The high frequency indicators that are believed to capture the ECG graph
of the Indian economy have been flat-lining.
Some analysts have used these data points on IIP, vehicle and FMCG sales
to conclude that domestic consumers are now in dire straits, putting the
economy at risk of a cardiac arrest.
But the assessment would be less pessimistic if one looks at the
services leg of the economy. Most high-frequency indicators in India are
designed to track consumer demand for goods and sales of manufactured
Yet, industry today chips in with just a fifth of India’s GDP while
services is three times as big with a 60 per cent contribution.
Services holding up
Three big-picture data points indicate that services may be holding up
better amid the industrial slowdown.
One, bank credit to the services sector, according to the RBI, grew at
20 per cent plus year-on-year every month between March 2018 and February
2019, closing FY19 18 per cent higher.
In the same months, credit offtake for industry grew at 1 to 6 per cent,
rounding off the year at 7 per cent.
Two, while listed industrial firms have delivered poor sales growth in
the January-March 2019 quarter at 5 per cent, services firms have grown fast
at 16.5 per cent.
This is derived from results of 175 NSE-listed services companies and
240 industrial ones that have so far reported their numbers.
Services companies have also steadily improved upon their revenue growth
in the last five quarters, starting out at 8 per cent in January-March 2018
and doubling the pace since.
Three, consumer price inflation trends for the past two years show the
price rise for services such as housing, health, recreation, education and
personal care has remained elevated even as goods inflation has collapsed.
India’s retail sector registered a revival of sorts in FY19 after
stalling the previous financial year.
Trade analysts put the sector’s growth at 8-10 per cent in FY19, with
organised retail growing faster.
Listed retail players have clocked a 21 per cent revenue growth in the
latest March quarter and value retailer Avenue Supermarts clocked same-store
sales growth of 17.8 per cent for FY19, rebounding from 14 per cent in FY18.
If demand for premium mall space is an indicator of the sector’s health,
consultant JLL noted that retailers, who absorbed 3.9 million sq ft of mall
space in 2018, were looking to double that to 7.7 million sq ft in 2019.
But while organised retail seems to be back on its feet, it is difficult
to know if the mom-and-pop stores which make up most of the sector are
mirroring this rebound.
Holidaying in exotic spots seems to top the bucket-list of affluent
Indians and that’s showing up in demand for hotel rooms consistently
outpacing supply in the last five years.
Indian Hotels checked out of FY19 on an upbeat note, recording a 10 per
cent revenue growth and its highest profit in 11 years. \
It shared industry data showing that demand for hotel rooms grew by 3.4
per cent in FY19 even as supply expanded 2.6 per cent.
Occupancy rates have climbed from 57 to 65 per cent in five years.
Should this sustain, players expect to take hikes in their room rates that
they have been putting off for five years now.
After battling activist regulators and reluctant buyers between 2013 and
2017, real estate players saw some light at the end of the tunnel in 2018.
Knight Frank noted that 2018 was the
first calendar year in a decade, in which sales of new homes in key cities
increased (they rose by 6 per cent to 2.42 lakh units).
The pick-up helped the industry’s unsold inventory recede from 7.2 lakh
units in 2014 to 4.7 lakh in 2018. RBI data reiterates healthy home loan
growth at 19 per cent in FY19.
Banks, insurers and mutual funds reaped a windfall in inflows between
FY16 and FY18, thanks to demonetisation.
But with the spell wearing off in FY19, bank deposits have registered
just a 10 per cent increase, life insurers have collected just 6 per cent
more in individual life premiums and mutual funds have seen their net inflow
halve compared to FY18. But this doesn’t put these players in particularly
difficult straits, as their flows remain well above pre-note ban levels. On
the credit front, listed banks saw a 16 per cent growth in the latest March
quarter, while many NBFCs braked due to the liquidity crunch.
Telecom players certainly don’t face a demand problem, with their
internet customers soaring by 82 per cent between 2015 and 2018 and their
data usage jumping from 136 MB to 8.7 GB per month, even though the mobile
subscriber base has stagnated. But with competition denting tariffs,
revenues of players have dipped in this period, with analysts now expecting
a shakeout to rescue profitability.
Consumers also seem to be splurging without a care on other forms of
entertainment. Listed players in the multiplex and content space saw a 22
per cent expansion in their takings in the March 2019 quarter, on top of a
26 per cent growth last year. India’s DTH subscriber base has jumped from 56
million to 71 million in the last three years.
Transport is one of the few services to have lost speed lately, with
commercial vehicle sales, a proxy for road transport, slowing sharply in the
second half of FY19. Air passenger traffic has also seen a drop-off from
January moderating FY19 growth to 13 per cent, from 19-20 per cent earlier.
The ‘E’ factor
Online aggregators who have enabled Bharatvasis to buy groceries, hire
conveyance, order food, book hotel rooms and call in the beautician at the
swipe of a smartphone managed scorching growth rates in the last three
Redseer Consulting estimates that e-tailing platforms shipped out 2.5
million packages a day in 2018, compared to 1.5 million in 2016.
Food-ordering apps have set the cash registers ringing at neighbourhood
eateries by clocking gross business volumes of $1700 million in 2018, from
$300 million in 2016. Daily rides hailed on online taxi apps have jumped
from 2 million to 3.5 million.
Need to be read with caveats.
One, while most of the above metrics capture growth for corporate
services firms, well over half of India’s services economy is made up of
informal mom-and-pop outfits on whom there is precious little information.
Two, a lot of the services growth seems to be powered by the creamy
layer of India’s population.
For more inclusive services such as telecom, loss-leader pricing has
played a big role in driving demand, suggesting that the growth could peter
out if the economy doesn’t deliver income increases.
Collecting more data on the informal sector and designing a monthly
index on services, like the IIP.
It can help ensure that commentators on the Indian economy, like the
seven blind men, don’t have to guess at the shape of this elephant by
feeling its trunk.
Q.1) Which of the following best describes the equation between rights and
(a) Citizens can only have rights, while state can have both rights and
(b) To not violate any right of a citizen is solely the obligation of his/her
(c) Rights not only place obligations on the state, but also on every citizen.
(d) Only those rights of the citizens which have environmental aspects place
obligations on them.
Q.1) While big picture data on services is positive, how did individual