Moody’s growth prediction a boost for Modi but sectoral concerns remain

Moody's growth prediction a boost for Modi but sectoral concerns remain

Moody’s is making headlines for its global macro outlook, which says that Indian economy is largely resilient to external pressures like those of higher oil prices, and could grow by around 7.5 per cent in 2018-19.

This may seem a piece of good news for the Narendra Modi government. But according to the analysts and other experts, concerns still remain.

Take the two crucial sectors that are the face of India in the global markets – IT and pharma. The Indian GDP hardly has any implication on the Indian IT industry, from a business and growth perspective, since it is an export-led sector.

Moody’s growth prediction a boost for Modi but sectoral concerns remain

Analysts are certain that a double digit growth for the IT industry in 2018-19 is far-fetched as the budgeting has already been done for the year. This is despite factoring in tax regulation changes in the US, which has put more disposable money in the hands of their (IT sector) clients.

Also, it is too early to talk about the growth potential in 2019-20, because the budgeting has not even started in the US and Europe and is expected to start around November. Much of the fate of the export-led sector is linked to the performance and growth in the markets they are present. Here, news reports point out that Moody’s Investors Service sees advanced economies growing at around 2 per cent in 2018 and 2019.

Now, consider the pharma industry, where most of the growth, at least for the leading Indian pharmaceutical companies, comes from exports. The growth challenges that the Indian pharma industry has been facing, for the last three years, has largely been on the account of the developments in their key market US. The companies are getting slow approvals for marketing their drugs in the US and also many of them are still reeling under the regulatory glare of the drug regulator US Food and Drug Administration (USFDA).

Some such as Sun Pharma and to some extent Dr Reddy’s are seeing relief, with their plants getting cleared by the USFDA. But even if some of them begin to show good growth this year, as could be expected from Sun Pharma, it needs to be noted that their performance in the previous year has been far from comforting.

Last year, plants of many Indian pharma companies received warning letter from the USFDA. Many of the major pharma players, analysts feel, would not be able to immediately show strong growth. In the domestic market, too, the growth of Indian pharma this year is against a low base of the growth in the previous year, when at certain points it touched negative. Even if it were to grow at around 10 per cent in the domestic market, it will still be some distance from the 12 to 15 per cent range it could reach at best in recent years.

The Moody’s prediction of 7.5 per cent growth has also to be seen in the backdrop of rupee’s depreciation in comparison to the US dollar.

source: businesstoday