| 5 March 2008
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 Indian
Economy Next Quarter
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As expected in our last newsletter, budget makes everyone happy.
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Fiscal deficit numbers deceptive with subsidies and loan waiver
not factored in ? next govt. will have to face the music. |
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Honeymoon with IT sector over ? IT needs to build ?inclusion? into
its own strategies.
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Expectedly, third quarter GDP results show moderation in growth.
Expect Q4 to be slower at 7.4% compared to the 9.7% clocked last year.
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Expect 8.2% growth in 2008-09 down from CSO?s 8.7% this year.
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Low agri growth will put pressure on prices going ahead.
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Petrol prices finally rose in February even as crude surged past
100.
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Rupee tumbled below 40 ? expect impact on inflation in the coming
quarter.
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Govt. stresses inflation - rate cuts will hinge more on domestic
factors than global trends.
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| India
: Kal, aaj aur kal |
| Expectations and hype over the budget
is over, but the chickens will come to roost in a few years as the impact is
felt of the largesse of this govt. Loan waivers may be a good idea as a vote
grabber, though even this is not a given, voters are more in tune with reality.
On the field, the situation is far more serious and merit better strategies of
alleviation. Farmers borrow more from private sources than from commercial
banks. Most of their borrowing is for non-agricultural reasons ? which is
showing up in the declining use of inputs and productivity. What is needed is
greater access to information and knowledge, to training on a sustained basis
and to markets. Over-the-counter palliative tonics won?t build the immunity
systems that are vital for better agricultural health.
The CSO Q3 estimates of GDP growth at 8.4%, don?t quite gel with the advance
estimates for the whole year of 8.7%. For instance, if we put the sectoral
numbers together, it appears that for the last quarter, agriculture and mining
will have negative growth, electricity will miraculously have double digit
growth etc. For us however, the details aren?t as important as the lesson that
growth estimates from the CSO are merely indicative of a trend and obviously
should not be subjected to such ?rigorous? scrutiny. Suffice to say that going
ahead, the moderation will continue, we are looking at sub-8.5% growth next
year as well. This will affect the calculations in the budget, but that
will be the next government?s worry.
For the year ahead, we see 8.2% growth - the boom is over, slowing global
economy and inflationary pressures from oil, wheat and other essentials will
make their impact felt. The upside can come from extra government spending- the
pay commission payouts for instance could push growth to 8.5%, all other things
remaining the same. Net net, we are looking at 8-8.5% growth for the next year.
Slowing momentum will show up strongly in the first half of the coming year.
Times will not be bad, but nowhere near the 9% plus rates of the past.
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| Sumita Kale & Laveesh Bhandari |
| 5th March 2008 Indicus Analytics |
| Contact : sumita@indicus.net &
laveesh@indicus.net |
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Economic Growth
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Indicus Forecast 2008-09
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| GDP |
8.2% |
| Agriculture |
2.8% |
| Manufacturing,
Mining & Electricity |
8.6% |
| Services
including Construction |
9.6% |
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Month of forecast: March 2008
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Advance estimates of 2007-08 GDP put growth at 8.7%. |
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Third quarter GDP results show 8.4% growth compared to 8.9% in the
previous quarter. Moderation in growth continues as forecast. |
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2nd Advance estimates for 2007-08 agriculture put growth of food
grain production at 0.9% compared to 4.2% growth previous year. |
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Food grain production estimated at record high of 219.3 million
tonnes. Oilseeds growth estimated at 11.8%, recovered from last year?s fall by
13.2%.
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IIP for the month of December grew by 7.62%, compared to 13.4%
previous December. Manufacturing at 8.4% was considerably lower than the 14.5%
previous December. |
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Infrastructure industries also slowed down to 5.7% growth in the
period April-December 07 compared to 8.9% same period previous year. Coal is
the only sector that has maintained its performance this year, all others have
dropped. |
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ABN-AMRO PMI survey puts manufacturing growth in February at a 5
month low. New orders flagged as did the export index. |
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Railway freight earnings rose by 12.3% for the period Apr-January
compared to 16.0% same period previous year. Freight carried rose by 8.4%
compared to 9.4% last year for the same period. |
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January 2008 saw a record of 8.77 million subscribers added on to
the wireless network in India, highest ever in a month. |
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| Inflation
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Crude oil is rising to new highs past $ 100 a
barrel. |
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Commodities prices ? gold, silver ? are booming while others like
wheat,corn, meat are also rising as tight supplies are being forecast. |
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This year will again see higher prices as supplies of wheat, corn,
soya etc. cannot be adjusted to rising prices easily. Also as acreage is fixed,
any shift to one crop will affect the others ? tightrope walking ahead. |
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The PMI survey reported high input prices for manufacturing firms
who raised factory gate prices at four month high. |
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In India Consumer Price Indices for January have stabilised ?
inflation at 5.51% (CPI IW), 5.63% (CPI AL) and 4.84% (CPIUNME). |
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WPI inflation has been rising steadily from 3.1% in October to
4.4% for February. |
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Latest provisional WPI data incorporates the fuel hike, inflation
stands at 4.89% for the week ending February 16th. |
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We have been predicting a rise towards 5% by March end for a
couple of months now, which hinged on the fuel price hike which has now taken
place. |
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Expect inflation to rise to 5% levels in March and dip towards
4.5% in April. |
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| Interest
Rates
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With the US economy in doldrums and the Fed loosening the rates,
the expectations for lower rate regime persist. |
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The Bank of England cut in February again, with a high possibility
of holding rates in March. |
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The ECB has not given in to the market clamour for a rate cut,
with the Bundesbank Governor, Weber, stating quite clearly that expectations do
not reflect the bank?s evaluation of monetary policy, where price stability is
of prime concern. |
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RBI continues to hold out given the inflationary pressures and the
10 year GSec yield which had dropped in the end of January, picked up above
7.5% as predicted in our last newsletter. |
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10 year Gsec yield is expected to range between 7.5-7.7% in the
next couple of months, a downward bias may be strong if conditions ? lower
growth than the 8.5% expected by the RBI - warrant a rate cut April end. |
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| Exchange
Rates
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The fall of the dollar continues to new lows, at 1.5, the lowest
against the Euro since the introduction of the Euro in 1999. |
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As stated in our last newsletter, it is not a normal year and even
with the interest rate differential, funds have not poured in from abroad.
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Exports in January rose by 20.47% in dollar terms and 7% in rupee
terms. Imports surged 63.57% in dollar terms and 45.28% in rupee terms. Both
oil and non-oil imports rose by more than 60% in January compared to last year. |
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The trade deficit rose to % 67.41 billion in the period
April-January compared to$ 45.7 billion for the same period last year. |
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With the rise in crude and worries in the financial markets, the
rupee has fallen below 40, bringing relief to the exporters but putting
pressure on inflation through more expensive imports.
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Rupee expected to range in the 39-40 belt over the next month,
downside risks of course coming in from the price of crude and stock market
blues.
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