India GDP growth defies US-Iran war impact, economy grows at robust 7.8% in Q1
India GDP growth defies US-Iran war impact, economy grows at robust 7.8% in Q1
India’s current economic performance is being influenced by more than free-market forces, with a range of policy-driven distortions playing an increasingly important role. According to a Bernstein report, corporate earnings, domestic consumption and asset valuations are being shaped to a greater extent by regulatory measures, tax incentives and large government transfers, rather than by improvements in underlying productivity.
Bernstein said market observers often focus on headline numbers without taking into account the structural trade-offs behind them. In a closely connected economy, gains recorded in one part of the system can often be the result of losses being absorbed elsewhere.
“As we reviewed commentary around the recent earnings season in India, there seemed to be far more enthusiasm for strip ping out the negatives than for understanding their underlying causes,” the report stated.
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“Temporary supports were often treated as permanent improvements, while costs absorbed elsewhere were conveniently ignored.”
The report illustrated this through the performance of the NSE 200, whose earnings rose 8 per cent in the June quarter. While the combined earnings pool was slightly above USD 38 billion, oil marketing companies reported losses of $2 billion. The government, meanwhile, absorbed an estimated USD 8 to 10 billion through excise duty cuts and higher LPG and fertiliser subsidies. These measures supported consumer spending elsewhere in the economy, but at the same time reduced the government’s capacity for capital expenditure.
“If the 100th company in an economy donates $50bn to consumers, who then spend it on the products of the other 99 companies, it would be incorrect to ignore the loss-making company and celebrate the strong earnings growth of the remaining 99,” the report explained. “The gains and losses are linked.”