India Market Watch: Economic Activity Indices Show Robust Growth in August and Retail Market Predicted to Double by 2020

September 5, 2016 Posted by India Briefing Reading Time: 5 minutes

India’s Manufacturing and Services Data Show Robust Growth in August

Factory activity expanded at its fastest pace since August last year, rising to 52.6 from July’s 51.8, as calculated by the Nikkei/Markit Manufacturing Purchasing Managers Index (PMI). This is the eighth month that the manufacturing PMI is above the ‘50’ level, which separates growth from contraction. Another indicator, the New Orders Sub-Index, which takes into account both domestic and external demand, was 54.8 in August, its highest since December 2014, indicating strong demand for Indian manufactured goods. However, the price growth lost some momentum as both raw material costs and output prices increased only slightly, meaning that consumer inflation could cool down in the coming months. This would impact the central bank’s monetary policy announcement, the first by new RBI governor Urjit Patel, expected in October.

Similarly, India’s service sector business activity made gains in August, rising from 51.9 in July to reach 54.7 in August, according to the seasonally adjusted Nikkei India Services Business Activity Index. The growth posted is the highest in 42 months. Overall growth in output saw increases registered in the Financial Intermediation, Other Services, Post & Telecommunications, Renting & Business Activities, and Transport & Storage categories. The only sector showing decrease in activity was Hotels & Restaurants. Business confidence, which is at a 19-month high, has been linked to greater client interest and improved market conditions. Over 27 percent of the companies surveyed expected increasing output volumes in the financial year as opposed to one percent reporting a negative forecast. Nevertheless, the trend of employment was relatively subdued in the services sector due to a slight decrease in staffing levels, although the rates of job shedding were negligible industry wise.

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Asian Competitiveness Institute Report Alters State Ranks in 2016 Ease of Doing Business Assessment

The latest Asia Competitiveness Institute (ACI) Ease of Doing Business Index ranks Maharashtra (1), Gujarat (2), and Delhi (3) as the top three (out of 29) States for overall competitiveness. They are followed by Goa (4), Andhra Pradesh (5), Tamil Nadu (6), Karnataka (7), Madhya Pradesh (8), Himachal Pradesh (9), Telengana (10), Punjab (11), West Bengal (12), Chhattisgarh (13), and Orissa (14). States ranking at the bottom include Uttar Pradesh, Assam, Uttarakhand, Bihar, and Jharkhand. The report completely alters the rankings from the 2015 World Bank’s Ease of Doing Business Index, which had ranked Maharashtra (8), Gujarat (1), Delhi (15), Goa (19), and Andhra Pradesh (2).

The ACI’s notion of ‘competitiveness’ of States is assessed on the basis of four parameters: macroeconomic stability; government and institutional setting; financial, business, and manpower conditions; and quality of life and infrastructure development. Overall, the ACI’s Ease of Doing Business Index includes 81 indicators that cover Business Friendliness (40 per cent weight), Attractiveness to Investors (40 per cent), and Competitive Policies (20 per cent). The report factors in both ‘hard data’ from each state and the data gathered from surveys of investors, government officials, and academic experts in the specific areas. Though the ACI report is a prototype, it makes a wider geographical assessment than the World Bank’s index, according to Professor Tan Khee Giap of the Institute.

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New Forecast Predicts India’s Retail Market to Double by 2020

A joint report by the Federation of Indian Chambers of Commerce and Industry (FICCI) and consultancy PricewaterhouseCoopers (PwC), Shaping Consumer Trends, predicts that consumer spending in India will touch US$ 3.6 trillion (Rs 240 trillion) by 2020. This rise in spending would increase India’s share in global consumption to 5.8 percent, more than twice its current share. The report also expects India’s retail sector to double to US$ 1.1 – 1.2 trillion in 2020 from US$ 630 billion in 2015, at a compound annual growth rate (CAGR) of 12 percent. Also, in the retail industry, the packaged consumer goods sector alone will cross the US$ 100 billion mark by 2020, growing at a rate of 18 percent. Furthermore, India’s e-commerce market could reach US$ 125 billion in terms of gross merchandise value (GMV) by 2020, growing at the rate of 31 percent.

The report bases its prediction on the projection that the average household income in India will triple to US$ 18,500 in 2020 from US$ 6,400 in 2010. Consequently, India’s demographic dividend (large young population), rising standards of living, upwardly mobile middle-class, and rising internet penetration will convert into substantial gains for both brick and mortar as well as online retail. Illustrating this growth potential is a report by research and consultancy firm IMRB’s Kantar World Panel, which states that nearly 50 percent of the total number of new launches in the personal care category was in the premium segment. Finally, the FICCI-PwC report predicts that the maximum consumer spending will likely occur in the food, household, transport, and communication segments.

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