Pleasant surprise
India Inc Q1 numbers paint a picture of resilience
Listed companies were expected to get off to a rocky start in FY27 — thanks to rising energy costs, the impact of El Niño and the ongoing Iran conflict. However, an analysis by this newspaper of results from 4,220 listed companies portrays a picture of surprising resilience.
Total revenues for India Inc expanded at 20.9 per cent in Q1 FY27, accelerating from 10-13 per cent in the preceding three quarters of FY26. Only a part of this healthy topline expansion likely came from sales volumes. As the impact of the energy shock cascaded down to companies, they passed on input costs.
Admittedly, consumer durable makers hiked their selling prices by about 5-8 per cent this quarter, automobile and FMCG by 4-5 per cent, cement companies 5 per cent, paint companies 14-15 per cent and so on. However, the 21 per cent expansion in aggregate sales shows that these hikes didn't result in demand destruction.
Companies clearly did not pass on input cost escalations in full, as the aggregate operating profit margin (OPM) fell to 18.2 per cent in Q1 FY27 from 20.4 per cent a year ago. Net profit growth moderated to 13.6 per cent from over 17 per cent in the previous two quarters. However, this is still a surprisingly healthy pace of growth.
A deeper dive reveals contrasting trends. On the positive side, there were standout sectoral performers for the quarter from power and electrical equipment and high-end manufacturing. The 31 per cent sales growth for electrical equipment companies, 75 per cent in aerospace and defence, 60 per cent in electronics and over 44 per cent in cables represent the opportunities from the ongoing global clean energy transition and rising capex in defence and electronics.
That affluent consumers were little affected by inflation is evident from discretionary consumption remaining strong, with a 78 per cent growth in e-commerce, 75 per cent in jewellery, 20 per cent in durables and 17 per cent in automobiles. Despite higher inflation and a poor monsoon, lower-end consumption and staples did reasonably well with an 18 per cent sales growth in FMCG, 12 per cent in textiles and 15 per cent in retail trade.
Whether this sustenance of inflation picks up and the monsoon ends badly, remains to be seen. Given the fluid geo-political situation, the 25-30 per cent sales growth managed by commodity-driven sectors such as refineries, metals and chemicals needs to be read with caution. Several sectors are faced with severe margin pressure — between aerospace, electronics, and analytics, for instance.
IT services and banking, two employment generating sectors, put up only a modest show. Falling employee costs-to-sales suggest that India Inc has been frugal with wages. Overall, India Inc’s Q1 numbers reinforce trends from the high-frequency indicators — which show the Indian economy chugging along well despite external risks. A rate hike to tame inflation may not upset this momentum. Double-digit earnings growth may help put a floor to the ongoing stock market correction.
Dynamics of credit, deposit growth
VITAL ASPECTS. Too much credit growth can cause inflation and too little can constrain growth. Quality of credit matters
By C Rangarajan and S Sarma
Over the last five years (2022-2026), credit growth has exceeded deposit growth every single year. There has been a lot of media buzz implying that this creates liquidity crisis and even financial stability issues. Credit/Deposit ratio had gone up from 70 per cent to nearly 82 per cent. Preoccupations in growth rates to the exclusion of gaps in absolute amount may not tell the full story because the base for the two are very different. As seen from Table 1, deposits were ₹165 trillion, ₹180 trillion, ₹199 trillion, ₹225 trillion, and ₹254 trillion in FY 2022, 2023, 2024, 2025, and 2026 respectively. In absolute terms, the gap between credit and deposit was ₹4.9 trillion, ₹5.4 trillion, ₹6.2 trillion, ₹7.0 trillion, and ₹7.1 trillion in FY 2026. The gap has grown only by 1-1.5 per cent of the deposit base and may not by any stretch of imagination be termed as a crisis.
Credit growth rate outpacing deposit growth rate is not a new phenomenon. It was common for most part of 2000-2010. RBI data shows that the five-year compounded average deposit growth rate during the period 2022-2026 was 11.3 per cent, lagging behind credit growth rate of 12.8 per cent. This, however, is not explained by the deposit model.
Deposit and credit growth
| Item | 2021-22 | 2022-23 | 2023-24 | 2024-25 | 2025-26 |
|---|---|---|---|---|---|
| Deposits (increase) (₹ trillion) | 14 | 17 | 24 | 24 | 26 |
| Deposit growth (%) | 11 | 14 | 11 | 11 | 11 |
| Credit (net increase) (₹ trillion) | 16 | 20 | 20 | 27 | 30 |
| Credit growth (%) | 16 | 21 | 12 | 14 | 14 |
| Credit Minus Deposit growth (₹ trillion) | 2 | 3 | 1 | 3 | 4 |
LOANABLE FUNDS
While analysing the gap in absolute growth figures, we should realize that deposits are not available for providing loans in full because of the requirement of 4.5 per cent of CRR and 18 per cent out of deposits. Therefore, one has to look not only at incremental deposits but the available funds are also affected by two other factors: one is the increase in capital stock and long-term borrowings and the other is the change in CRR and SLR. For example, in the recent past CRR was brought down from 4.5 per cent to 4.0 per cent in 2020. SLR came down from 21.25 per cent in 2018 to 18 per cent in 2020 and has remained at that level since then. Thus, looking at the problem from the perspective of individual banks, the comparison must be the total availability of loanable funds and credit dispersal. From the available data (Table 2), the outstanding loanable deposits cover outstanding credit till 2025-26, but this trend has changed in 2026 and the gap widened. Our analysis for the June quarter surprises and the gap widened for June quarter. There needs to be monitored growth rates. There is less scope for further cutting of CRR and SLR. At present CRR is 4.5 per cent and SLR is at 18 per cent. Banks with significant excess SLR is for repo borrowings in the market, which are currently around ₹2.4 lakh crore, and reached a high of ₹4.7 lakh crore. Banks also raise funds through infrastructure/green Tier 2 bonds and owned funds increased significantly as profits and plough back have improved.
When it comes to regulation of credit, the central bank plays twin roles, as a monetary authority and as a regulator.
Loanable funds and credit growth
| Item (Billion ₹) | 2021-22 | 2022-23 | 2023-24 | 2024-25 | 2025-26 |
|---|---|---|---|---|---|
| Loanable deposits (₹ trillion) | 132 | 147 | 168 | 190 | 218 |
| Credit outstanding (₹ trillion) | 121 | 141 | 171 | 191 | 213 |
| Credit/loanable deposits (%) | 91.5 | 96 | 101 | 100 | 103 |
| Change in borrowing (market/RBI/refinance) | 11 | 14 | 21 | 15 | 17 |
| Certificates of deposits (₹ trillion) | 2 | 3 | 5 | 6 | 7 |
| CRR (%) | 4 | 4.5 | 4.5 | 4.5 | 4.5 |
| SLR (%) | 18 | 18 | 18 | 18 | 18 |
| SLR investment/deposit ratio (%) | 29 | 30 | 28 | 27 | 26 |
AGGREGATIVE PICTURE
Textbooks on money and banking present an alternative view on the relation between credit and deposits. It is argued that in a fractional reserve system, lending leads to multiple creation of deposits.
A bank is willing to lend say 90 per cent of its deposits based on regulatory requirement and customer behaviour in withdrawing cash taken together do not exceed 10 per cent of the deposits. When a bank lends say ₹90, the bank gives the borrower a deposit.
As the borrower uses the deposit, the amount goes as deposit to another bank. That is why the saying every loan makes a deposit.
Thus, the whole process results in multiple creation of deposits.
This is possible because: (a) banks need to keep only a fraction of deposits in the form of cash and (b) what one bank loses another bank gains. The only exception is when a part of the deposits is withdrawn as cash.
So, if "r" denotes the required reserve requirement as a percentage of deposits and "c" is the proportion of deposits withdrawn in cash (sometimes called cash leakage), the increase in deposits becomes ΔD = ΔR/(c+r).
There is yet another sophisticated version of this formula. But in substance, this is represented as the model of deposit and credit expansion. SW are essentially a result of bank action. If banks are not able to lend because of lack of demand, the deposit multiplier becomes smaller. The formula given earlier sets the upper limit. It is also important to recognize that the reserve requirement ratio may vary because of various other reasons such as uncertainty and expectations. It is widely accepted that deposits creation somewhat undercuts the view that banks are merely "financial intermediaries". It is perhaps true that deposits and credit are together the result of credit dispensation. Credit initially creates only Current Account deposits.
While at the aggregate level the central bank's action in creating reserve money or high-powered money is the source of loans. That is still a good point to start from. Of course, credit growth cannot go un-restrained without limit. Of course, central bank can control overall credit by changing "r". What the central bank should do, depending on the situation.
Managing the expansion of money is an important responsibility of the central bank. However, the adjustment of policy rate is not enough to control the volume of money and consequently deposit growth. They are concomitant decisions. When it comes to regulation of credit, the central bank plays twin roles, as a monetary authority and as a regulator. Policy weights are adjusted to regulate flow of credit to various sectors. Maintaining adequacy ratio as well as liquidity ratio is essential to ensure financial system growth and ensure the soundness of the banks.
Overall credit growth is an important dimension to watch. Too much can explode into inflation and too little can constrain growth. Limiting credit growth to deposit growth is only one aspect. There are a host of other issues related to liquidity, stability and quality of credit that need to be kept in view.
Rangarajan is Former Governor, Reserve Bank of India; and Sarma is Former Economic Adviser, Ministry of Commerce and Industry. C.R. Bhardwaj and S. Sarma are with ICFAI, Hyderabad.
Tapping Northeast’s renewable energy potential
The region does not lack capital. Its real test is whether transmission, storage and project execution can match generation
By Rouhin Deb and Nikhil Sinha
The Northeast is emerging as one of the most consequential frontiers of India’s renewable energy transition. Assam has announced a ₹27,333-crore investment roadmap to expand generation, while Arunachal Pradesh is working towards harnessing its 50-GW of hydro-power capacity against a resource base estimated at more than 58 GW. The scale of the ambition is striking. Yet the critical question is no longer whether the region can attract capital and build generation capacity, but whether it can build the grid required to convert that capacity into usable energy for the rest of India.
That distinction matters. The problem of stranded power is often rooted into the wider story of financially stressed discoms, but in the Northeast, the constraint is of a different order. Unlike in Rajasthan, where solar projects have been approved by large subsidy burdens, much of the Northeast’s capacity expansion—especially in transmission infrastructure, delayed execution and weak capitalisation of projects. In other words, the bottleneck is no longer about the money, but about the ability to move electricity from where it can be generated to where it can be consumed.
Current data on generation capacity utilisation shows how large the unfinished task remains. Only about 4 per cent of the region's estimated 130 GW renewable potential—including 66 GW of hydropower potential—is currently being utilised. The remainder has been an issue of prolonged delays. More recently, central public sector undertakings such as NHPC have stepped in to take over distressed state assets and restart stalled construction. This can help revive generation. But generation alone does not create an energy economy.
Power must reach new centres of demand. Assam's burgeoning industrial infrastructure—the semiconductor chip assembly facility, the Subroom special economic zone in Tripura, and Sikkim’s pharmaceutical manufacturing hub—all represent new industrial opportunities that could give the region’s energy built an economic logic. But these opportunities depend entirely on intensified mega-watts on burdened lines, shifting focus from generation to the transmission network servicing them.
STORAGE CAPACITY
Under the aegis of the equation, Assam's Pumped Storage Power Policy, 2023, has approved four projects with a combined capacity of 2,820 MW. Pumped storage can absorb cheap surplus electricity during periods of low demand and release it when demand peaks. In theory, this solves the grid's principle challenge: how to integrate more renewable power, in practice, however, the transmission system contested to its limit.
The Northeast also presents unusually demanding engineering conditions. Large parts of the region fall in Seismic Zone V. Pumped-storage projects involving dual reservoirs must therefore contend with risks such as water ingress, slope instability and cave-ins.
KEY ISSUE: Under-investment in infrastructure, delayed execution of projects
The more persistent problem is the gap between sanctioned transmission projects and those that are actually commissioned on the ground. This is where the Northeast must make a difference. One option is to link approvals and disbursements more closely to physical milestones reached and actual capitalisation rather than to proposed expenditure alone. Such a framework would reward projects that minimise delays and reduce the distance between utility plans and completed infrastructure.
The Northeast's energy deficit therefore cannot be understood simply through the familiar lens of fiscal indiscipline. Its core weakness is infrastructure that has not expanded at the pace demanded by geography, industry and new generation capacity. The region cannot afford a slow transition to this transition. Large hydropower projects, although ecologically and politically sensitive areas, represent a reliable source of baseload. More that give tribal communities a share in financially viable projects can help move them from being petitioners at the edge of the development process to stakeholders in the assets being created.
Hydropower development in Arunachal Pradesh also has implications for India's border infrastructure and a stronger Indian footprint in the region. This cannot be intersected with questions of downstream riparian interests and water security at a time when China is building dams on the Brahmaputra. Energy planning in the Northeast must therefore be at the intersection of economic development, renewable energy targets, grid risk and strategic policy.
The transition currently underway in the Northeast does not need generation targets and transmission plans to be treated as separate goals. They must be built as one system. A gigawatt generated at a riverhead in Arunachal Pradesh or a solar facility in Assam has zero economic value if the region cannot evacuate it, move it within the region or export it to industry or the national market.
Deb is Chief Economist, Government of Assam. Sinha is Senior Advisor, Ministry of Power, New Delhi. Views are personal.
No comments:
Post a Comment