Delayed monsoon not a positive sign nor is it a greenshoot: CMIE

Mahesh Vyas, MD & CEO of Centre for Monitoring Indian Economy (CMIE) in an interview to CNBC-TV18 said that the macroeconomic numbers for previous month do not seem to be promising. "The fiscal deficit has reduced and the monsoon has progressed but the delay was longer than I had anticipated, which is not a positive sign and it is not a greenshoot," he added.  He also said that capacity utilisation across various sectors is still very low at 70 percent and there is a substantial amount of capacity which is yet to be put to use. "The return on capital is also low at just around 2 percent," he added. He said the unemployment rate climbed up to 10 percent in May since January but saw a downtrend in June to 8.8 percent. He added that new stalled projects have stabilised in the last two quarters but the number of projects which are still stalled remain high.Below is the verbatim transcript of Mahesh Vyas' interview with Sonia Shenoy & Anuj Singhal on CNBC-TV18. Anuj: We were just talking about some of these data points a while back when we had our guest editor. What is your sense looking at the on ground situation the fact that the monsoon is looking good do you get a sense that the numbers in economy should change soon? Are you getting tell tale evidence from that? A: Not as yet really, the most recent numbers are not as promising as they should have turned out to be so the monsoon is still in deficit. So, although the deficit has reduced and the monsoon has progressed, but a delay in the monsoon that was supposed to catch up pretty soon got a lot more delayed than anticipated. So, we still have deficit after the first monsoon is over, so that is not really a positive sign or a green shoot at all. The second thing is that we have seen our CAPEX numbers for the quarter ended June and they look terrible. So, the new investment proposals by all government and private sector put together is the lowest in 10 years, so that is not a good sign at all. Sonia: That point was corroborated by our editor from Morgan Stanley as well where they said that they don’t expect a full fledged recovery in private CAPEX at least for the next 12-18 months. Do you think it would be that far drawn out? Is that a timeline that you are looking at as well? A: It will certainly take time. I can’t put a finger to 12-18 months or not, but the conditions do not look good enough for new investments to happen. Capacity utilisation is still very low, you look at individual industries or you look at the RBI's or Order Books, Inventories and Capacity Utilisation Survey (OBICUS) survey and they all point towards a capacity utilisation closer to 70 percent. Which means there is substantial amount of capacity yet to be put to use and the return on capital employed is also very low around 2 percent or so. So with low returns on capital and low capacity utilisation I don’t think this is right environment for anyone to actually aggressively go into expansion of capacities. Anuj: At CMIE you also track the unemployment data and any changes in that or any key takeaways from that data? A: The data for June is a little better than what we saw in the preceding months. However, mind you this a young series as yet, we began estimating unemployment rate from the month of January 2016. The Unemployment rate was rising steadily from January to May and that reached about 10 percent or so. Then it climbed down to around 8.8 percent in the month of June. So, that is a slightly better story but there could be a seasonality in this that in summer months young people exiting collage are looking for new jobs and unemployment as rise around them but then they get some jobs and unemployment data has come down a little. We require longer time series, more data to get a sense of that. The happy news right now is that the unemployment rate in June was low than we saw in the preceding three months. Sonia: At least that is good to hear because the other things you told us are not so happy the fact that capacity utilisation is still low and the conditions are not good enough for new investments but what about the stalled projects have we seen any amount of reduction in the stalled projects? A: Yes, the new stalled projects have kind of stabilised in the last two quarters. We saw stalled projects still in the June quarter and they were quite a few significant stalled projects around this quarter. These are lower than what we saw in the preceding quarters, so there is a fall in additional stalled projects. The outstanding project stalled is still high. Sonia: What do you think could be the reason for the fact that private CAPEX is just not picking up and what do you think could be the solutions to that? I mean we have been talking endlessly about weak external demand conditions, but is it still that or is there something else which is causing private CAPEX to just not pick up? A: There is a lot more than just external demand, there is a lot of problem in domestic demand as well. So, you see the consequences of two consecutive years of drought like situation does impact demand. Right now rains have been progressing rather tardily and even if these do pick up and sowing does pick up which is still lagging and if the crop is good and farmers do get a good price they are going to spend most of the moneys into repaying old debts. So, it is important for domestic demand to pick up or government to spur demand both of these themes unlikely. However, the most important thing is that there is lack of sufficient growth in domestic demand to spur investments.