1. News
  2. Explained

India GDP Growth Slows, CSO Downgrades GDP estimates for UPA Era, EU Approves Brexit Deal et al

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 2, 2018 2:45 PM 5 min read

Good evening readers,


This week witnessed an increasingly confrontational relationship of economics with politics. 


With the Central Statistics Office (CSO) recalibrating, and in a way downgrading, GDP growth figures for the 2006-2012 UPA era, the opposition triggered a no holds barred attack on the incumbent government. Perhaps good timing for Nikhil to deconstruct the much-cited GDP metric here


The telecom industry too witnessed an upheaval. Read this week's LongShorts to understand how the entry of Jio has its incumbents competing for higher subscribers. We also discuss it in our weekly Podcast.


Finally, with the European Union (EU) approving the UK’s Draft Withdrawal Agreement, the British Parliament is set to vote on the Brexit deal on 12th of December. Another topic covered through our LongShorts and the Podcast.


Now, moving on to the Top 6 Business Stories of the week through our End Of Week Wrap Up


GDP growth slows to 7.1% in Q2 vs. 8.2% in Q1, below RBI estimates of 7.4%. CSO downgrades GDP estimates for UPA era. FM defends revision, Congress calls it a 'hatchet job'.


The What: India's GDP grew 7.1% in Jul-Sep quarter, down from 8.2% in Q1 on back of high fuel prices, sliding rupee and relatively weaker rural demand. The GDP growth rate came at 6.3% in the same period last year.


Up Close: The slump is also on account of poor performance in mining and agriculture sector. The agriculture sector grew at 3.8% in Q2 as against 5.3% in Q1. The manufacturing sector grew 7.4%, slowing down considerably from 13.5% in Q1

The What: Using 2011-12 as the base year instead of 2004-05, the Central Statistics Office (CSO) estimated that India's GDP grew by 8.5% in FY10-11 and not at 10.3% as previously estimated. This downgrading invoked a furore against the govt.


Similarly, 9.3% growth rate each in FY05-06 and FY06-07 was lowered to 7.9% and 8.1%, respectively, while 9.8% earlier estimated for FY07-08 is now 7.7%.


Supreme Court approves sale of RCom’s 4G spectrum to Reliance Jio. TRAI directs telcos to inform their subscribers of the new minimum recharge plans in a transparent manner.  Telcos to pay INR24,500cr to Government as spectrum fee in 2019.


What You Need to Know: SC has asked RCom to provide a corporate guarantee of INR14bn within two days to get a NOC from the government. This will be in addition to the land parcel, which has to be put up as security.


The Big Picture: In its earlier petition before the court, the Department of Telecommunications had remained firm on its stand that it would require a bank gurantee of nearly INR29bn from RCom or RJio before allowing the spectrum sale.


The What: The telecom regulatory authority pulled up Airtel and Vodafone-Idea after subscribers complained of receiving messages which warned them of their SIM cards being deactivated if they do not recharge their pre-paid accounts even as they had the minimum required balance.


The Big Picture: The development comes after Airtel and Vodafone-Idea hiked minimum recharge tariff to INR35 in a move to lift their Average Recharge Per User (ARPUs) and to take on Jio. 


Perspective: Telecom companies would have to pay INR 24,500cr to the government as deferred payment for previously won spectrum . This payment will be a boost to the Centre’s budget but will hurt telcos as they would be required to pay interest.


Up Close: Of the total, Vodafone-Idea has to pay almost half the sum, amounting to INR12,200cr. The firm is already facing huge debt and interest burden. The firm's share dropped c. 3%.


Government to introduce corporate rescue option for bankrupt firms.


The Government of India is planning to introduce “Pre-packaged Bankruptcy Schemes,” in a bid to reduce litigation involving resolution of bankrupt companies.


The What: Under this program, creditors and shareholders will approach a bankruptcy court with a pre-negotiated corporate plan for reorganization.


The Why: This new process will ensure resolution of bankruptcy cases out of court to safeguard the value of the company in question, while also saving time and money.




EU leaders approve Brexit deal for UK’s “orderly withdrawal.”


The Big Picture: At a meeting in Brussels, the 27-member European Union (EU) approved the Withdrawal Agreement that set the terms under which the UK will leave in March 2019 and the Political Declaration which establishes a framework for a future trade deal.


What You Need To Know: The UK Parliament is set to vote on the deal on 12th December, but its approval is uncertain. If the deal does not go through, PM Theresa May may have to approach Brussels for improved terms before March 2019.


However, leaving without a deal will have the UK face disruptions in trade and security ties.


General Motors to cut over 14,000 jobs in US to trim costs. Donald Trump threatens to raise tariffs in light of GM closures, China Trade War.


General Motors (GM) announced that it would be laying off over 14,000 employees from five factories in US and Canada in a bid to cut costs to adjust to its poor sales.


Up Close: President Trump expressed his disappointment and urged GM to stop manufacturing cars in China to replace the factory that is ending production in Ohio.


Zooming Out: This move will allow the company to save $4.5bn by the end of 2020. However, it would have a major impact on employment in states of Michigan, Ohio and Canada. Trump proposes 25% duty on pick-up trucks from markets outside North America in light of GM's workforce cut. 


US Trade representatives also examining options to raise tariffs on Chinese vehicles to 40% - in line with Beijing's charges on US-made cars.


Fed signals a likely rate increase in December, to adopt a more flexible approach thereafter.


The What: Minutes from the meeting of the Federal Open Market Committee suggested that another increase in the target range is likely, if incoming information on the labour market and inflation was in line with or stronger than their current expectation.


Up Close: Participants expressed concern over the rising level of debt in the non-financial business sector, and especially the high level of leveraged loans which could impact credit availability. An increase in tariffs could also possibility slow down economic growth.


Zoom Out: The Central Bank has raised rates by a quarter-percentage point every three months over the past year.


(We are now on your favourite messaging app – WhatsApp. We highly recommend you SUBSCRIBE to start receiving your Fresh, Homegrown and Handpicked News Feed.)