Strong year for Railways, Low wheat stocks, Weak industrial credit growth and more...
This Week In Data #15
In this edition of This Week In Data, we discuss:
FY23 has been a strong year for the Indian Railways
Wheat stocks with FCI are very low, but that may not cause a problem
Industrial sector credit growth has decelerated further
Cement and Steel output growth has decelerated to multi-month lows
FY23 has been a good year for the Indian Railways. Its revenues rose 25% YoY while operating costs rose 15% YoY. Consequently, its net revenue or operating profit (before appropriation to depreciation and pension reserve) rose 70% YoY to an all-time high of almost ₹600bn. The Railways thus appear to be much more financially healthy now than at any time in the last few years.
What is interesting about this is that the Railways achieved record revenues despite passenger traffic being well below the pre-pandemic level. The Railways carried 6.4 billion passengers in FY23, which is almost 25% below the FY19 level (the last full financial year before the pandemic). However, its revenue from passenger traffic in FY23 was almost 25% higher than the FY19 level. Essentially, while the passenger traffic is well below the pre-pandemic level, the mix seems to have changed towards higher-yielding classes. This plus fare increases have meant that the passenger business is no longer as big a financial drag as before.
As per the data released by the Department of Food and Public Distribution earlier this week, total wheat stock with the FCI stood at 8.3 million tonnes as of 1st April. This is barely above the buffer stock norm of 7.5 million tonnes as of 1st April. The stocks with the FCI are used to supply grains under the public distribution system and other such programs (like the mid-day meal scheme etc). The FCI procures foodgrains directly from farmers, at the declared MSP, and provides it to states under these various programs.
In the last 5 years, the average offtake of wheat under these programs was 25 million tonnes and last year the FCI had procured 19 million tonnes from the farmers. This year thus, the FCI will have to procure much more than last year to ensure that stocks remain at or above the buffer stock norms. Any quantity that the FCI procures reduces the amount available for the open market – for non-PDS consumers or for companies to buy to make biscuits or noodles or bread etc. Fortunately, the advance estimate from the Ministry of Agriculture is for wheat output this year to be ~5 million tonnes higher than last year. If this does materialise, we may escape with a limited spillover of a larger FCI procurement onto general wheat prices. Otherwise, FY24 could be another year of high wheat price inflation.
Industrial sector credit growth continues to decelerate. In March, it grew at just over 5% YoY, the slowest growth since late 2021. This is even as overall non-food credit growth remains healthy at over 15%. The gap between overall credit growth and industrial credit growth, at ~10ppt, is the highest it's been in recent years. The gap highlights the point we have been making in this newsletter for some time now – credit growth is currently being driven largely by consumption purposes rather than investment purposes.
Lastly, core sector growth decelerated to 5 months low of 3.6% YoY in March. Electricity generation was the biggest drag on growth since it declined almost 2% YoY. However, both cement and steel production also decelerated sharply. Cement production declined 1% in March and while steel production grew 9%, it was the slowest growth since October last year. Weaker cement and steel production suggests a slowdown in construction activity.
That’s it for this week. Have a good weekend and we shall see you next week…