| 5 January 2008
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 Indian
Economy Next Quarter
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With crude hitting $ 100 a barrel, petro price hike is expected
anytime.
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India shining globally - rise in NRI remittances and portfolio
investment show increased confidence. |
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FDI rises but outward FDI triples ? Indian manufacturing will
continue its global expansion plans.
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Software export growth slackens as the dollar decline hits hard ?
sector needs a strategy change.
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Election year budget and Pay Commission recommendations must
balance the goal of low inflation- an unlikely prospect.
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But tax collections are on the rise, giving some leeway on the
fiscal front.
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Growth in power generation has been slowing down considerably, as
have all infrastructure sectors. |
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Lack of winter rains in north India force lower acreage for rabi
crop.
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Food related supply-demand mismatches and associated price rises
ahead, unless weather is favourable.
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| India
: Kal, aaj aur kal |
| The past few months have been rife with
speculation about recession in the US and now Britain has caught the R bug,
with a record number of personal insolvencies being predicted this year. The FT
Economist survey has called it the worst outlook for Britain since the dotcom
bust. Do keep in mind that professional forecasters have a fairly bad record at
calling a recession. An incorrect call can be a professional hazard and there?s
safety in sticking to the consensus, which is why a recession often arrives
before the forecast. It is therefore time to take heed when the clamour amongst
international analysts grows louder, which it has this year.
For us in India, currently the consensus is for a slowdown. The world over,
growth forecasts are being lowered by analysts, by governments and by central
banks. Our Finance Minister meanwhile has gone against the herd. Not only does
he expect a 9% growth this year, he is confident of maintaining the same pace
next year. Maybe the view from the top is different, because from where we
stand, 9% in the year ahead seems quite a tough feat to pull off. Notice there
is hardly any talk of double digit growth recently. But Chidambaram?s
explanation for optimism is simple, he doesn?t see any major problems ahead,
?unless we ourselves create pitfalls.? Right, so now officially we know whom to
blame for growth less than 9%.
The quarter ahead will see some increases in petro and energy prices, some
upward impact on inflation forces, some liquidity tightening, an election year
budget. But it all will be overshadowed by the 8-9% economic growth. Party on
while it lasts! Wish you all a great 2008! |
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| Sumita Kale & Laveesh Bhandari |
| 5th January 2008 Indicus Analytics |
| Contact : sumita@indicus.net &
laveesh@indicus.net |
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Economic Growth
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Indicus Forecast 2007-08
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| GDP |
8.4% |
| Agriculture |
2.7% |
| Manufacturing,
Mining & Electricity |
8.5% |
| Services
including Construction |
10.1% |
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Month of forecast: October 2007
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IIP growth rebounded to 11.75% in October, not far off our
anticipated 12% yoy growth, with last October turning in low numbers and this
time October was the pre-Diwali month. |
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Manufacturing growth showed a spurt at 13.3% for the above
reasons. Mining at 3.7% and electricity at 4.2%(as reported earlier) continued
their lacklustre performance.
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Infrastructure sector growth has slowed down to 6.2% for the
period April-October, compared to 8.9% last year. Except for coal (9.2%) and
cement (7%), all other sectors grew at less than 5% in October. |
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Electricity generation continued its slow growth at 3.7% for
December, compared to the 9.1% clocked in December 2006. |
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FICCI business confidence survey for the quarter July-September
showed the index at its 5 year low, down 15% from last year.
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ABN-AMRO Bank survey of purchasing managers of 500 firms showed
manufacturing index in December highest since the survey began in 2005. New
orders, purchases and output all rose, while the exports segment was the only
item that has been falling since the peak in October.
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Freight earnings in railways has grown at 11.61% in the period
April-November 2007, compared to 14.08% growth in the same period last year.
Passenger revenue earnings grew at 1.6% compared to 12.77% for the period
April-November last year./td> |
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Wireless subscribers continue to grow, highest ever monthly
addition at 8.32 million in November, bringing overall tele-density in India to
23.21% compared to 22.52% in October. |
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Wheat sowing has had reduced acreage this year, 249.34 lakh ha so
far, compared to 263.3 lakh ha in the same period last year, according to the
Ministry of Agriculture?s end of December release. Winter rice sowing has
increased to 4.01 lakh ha compared to 2.58 lakh ha last year. Rabi pulses and
oilseeds show marginal fall in acreage so far.
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| Inflation
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Crude continues to rule high in the 90+
dollar a barrel level. Talk now again about raising fuel prices or cutting
excise duties on fuel |
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Commodity prices which have ruled high in 2007 are expected to
relax pace of increase in 2008 as growth slows down globally. |
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Coal India has hiked coal prices across the board by 10% effective
12th December, this has not shown up yet in the WPI data. |
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Consumer price indices maintain lower rise in November: CPI UNME
down to 5.06%, CPI AL at 6.15% and CPI IW maintained at 5.5%.
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As expected the WPI inflation numbers have been higher than
November, bringing December provisional data so far to average 3.62%.
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WPI inflation stands at a comfortable 4.1% for the year till 15th
December. Expected to rise to 5% levels by the year end.
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| Interest
Rates
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Slow growth in the US had the Fed cut rates in December for the
third time since September.
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Bank of England is expected to do the same for the second time in
January.
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Across the Channel, the ECB continues to resist, pledged to fight
Eurozone inflation, which at 3.1% in November was the highest in six years. |
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For India, Gsec yields have been steady since August, averaging
7.88% since then.
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Tough call for the RBI in the January review - contrary signals
coming in on the global front, inflation low with no fuel price hike, but crude
prices touching $ 100 briefly and food prices expected higher going ahead,
growth moderating but liquidity through money supply still higher than
anticipated, election budget expected to add to pressures.
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Current indications are for 10 year Gsec yield to stay between 7.8
% and 8.0 % in the next two months.
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| Exchange
Rates
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Balance of Payments data released for the quarter July-September
2007 show a rise in the surplus on the invisible account mainly due to higher
remittances from abroad ($ 19 billion compared to $ 12.7 billion in the period
Apr-September 2006).
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Software receipts at $ 16.3 billion in Apr-Sep 2007 showed lower
growth at 15.2% compared to the 37.2% growth in the same period last year.
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The surplus on the invisibles countered the deceleration in
exports and rise in non-oil imports, yet current account deficit rose to $ 10.7
billion in the first half of 2007-08, compared to $ 10.3 billion in the same
period last year.
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On the capital account, FDI rose to $9.9 billion (Apr-Sep 07)
compared to $7.3 billion last year. But outward FDI with companies on the
global expansion path was $6 billion compared to $ 2.8 billion last year,
bringing a fall in the net FDI this year. |
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Net external commercial borrowings doubled to $ 10.6 billion in
the first half of the year from $ 5.7 billion for the same period last year.
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Portfolio investment increased from $ 1.6 billion( Apr-Sep 2006)
to $ 18.4 billion (Apr-Sep 2007).
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External debt rose to $ 190.5 billion (Apr-Sep 2007), up 5.5 %
since same period last year. Major component is the external commercial
borrowings(27.2% share) and NRI deposits (22.9% share). Fall in dollar value
also contributed to rise in debt. |
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The rupee has appreciated 11% against the dollar in the calendar
year 2007, this despite efforts from the RBI to keep the rise steady and muted.
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Going forward, in the short term, the rupee will continue to have
an upward pressure and range in the 39-40 band. |
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