| 9th November 2009
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 Indian
Economy Next Quarter
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Stronger recovery across the globe ? trend to continue at slow
pace
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RBI refrains from rate hike in October, expect action only after
January
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Inflation in consumer prices continues unabated, expect reduction
in pressures only by January
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Exports decline reduced, horizon appears brighter |
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Overall ? a positive outlook on the economy over the next quarter
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| India :
Kal, aaj aur kal |
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Good tidings from across the globe as manufacturing showed stronger
signs of revival even in advanced economies that were the epicentre of the
crisis. India still appears the brightest growth prospect for the year-ahead;
all estimates seem to be converging on a 6.5% growth rate for the current year.
The stimulus package meanwhile will continue to stay, the FM has
said there are no immediate plans to even think of an exit strategy, ?I will
take a view on it as and when we are convinced that the economy has come out of
the worst situation and is in the firm path of recovery? he said at the
Economic Editors Conference in Delhi last week. That begs the question what
defines the path of recovery? The simple long term problem remains ? would a
?recovery? be sustainable if it has the same basis as the previous high growth
trend?
Engineering even this much of a recovery as we see now has come at
a cost. Tax revenues in September rose by a bare 0.8%, and are down by 7.6% for
the first half of this year. Custom and excise revenue were lower by 33% and
23% respectively for the period April-September, compared to last year. The
fiscal deficit by the end of September stood at Rs. 197775 crores, last year it
was Rs. 102654 crores. We think it is irresponsible to let investment and
consumption decisions continue to be based on these current parameters.
Everyone should be aware that this is a ?punch bowl? that will be taken away
sometime and make appropriate plans. Monetary policy too is looking worldwide
at when and how to exit from the current low rates, each country will take its
path according to domestic compulsions. But rate hikes are inevitable sometime
next year. The ?happy? times can only last a short while.
On the agri front, with rains in October, the kharif sowing
recovered to some extent, though rice still remains badly hit, the deficiency
in acreage sown has dropped from 61% in mid-September to 15% in mid-October.
Sugarcane production will be lower this year globally, heavy rain in Brazil has
left 10% of the crop unharvested. Raw sugar prices can surge to 30 year highs
by December-January, according to some commodity analysts. Imports by India
therefore will bear the brunt of this price rise. Bitter-sweet times ahead.
On the squabbling on the political front, the less said the better.
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P.S. We have started a blog with contributions from Indicus and
guest authors too, do join us at
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| Sumita Kale and Laveesh Bhandari |
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9th November 2009, Indicus Analytics
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Sumita Kale is Chief Economist, and Laveesh Bhandari
is Director, Indicus Analytics. They can be contacted at and
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| Economic
Growth
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IIP burst into double digit growth in August
at 10.4% for the first time since October 2007. With a low base effect from
last year, this implies that growth is trending back, albeit slowly. |
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Manufacturing grew at 10.2%, mining at 12.9% and electricity at
10.6%, showing well rounded growth |
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Infrastructure industries had slower growth in September, at 4%,
the same rate as last September, with only the electricity sector outperforming
its last year?s growth.
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Electricity generation had low growth in October, provisionally
estimated at 3.97%. |
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Final monsoon deficit for the country ended at 23% below normal.
With post-monsoon rains in October, water levels in reservoirs continued to
rise to reach 96.08 BCM , but were still 87% of last year and 94% of the ten
year average levels. |
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For the kharif crop, sowing has recovered with the late rains,
down by 15.7% for rice, up by 5.6% for pulses, while cotton has increased in
acreage by 13.4%. |
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The HSBC-Markit PMI survey showed a slightly lower level of
expansion in October at 54.5 levels of the index, new orders index fell to 56.7
while employment index rose to 50 and export orders reached the highest level
since August 2008.
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Indian Railways freight earnings rose by 7.5% over the period
April-September, with the Net Tonne Kilometres rising by 8.4%. |
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Employment is looking up, the Naukri Jobspeak index showed a rise
in hiring activity in September, higher by 4% over August numbers.
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Auto sales continued their rise in double digits through October,
Maruti sales rose by 21%, Hyundai rose by 41%, Tata/Fiat JV rose by 28%. In
two-wheelers, Hero Honda saw near flat sales in October over last year, while
Bajaj Auto had a 52% growth.
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| Inflation
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As stated in the last newsletter, WPI final
inflation went into the positive territory from August itself, as revisions are
revealing. |
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Provisional inflation for the week ending October 17th is 1.51% |
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September consumer price data shows high inflation at 11.64% for
CPI IW and 13.19% for CPI AL.
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Sugar prices have risen to a record high, up 31.02% since March
end with estimates of lower production this year. However imports are scheduled
to restrain the price hike.
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Steel prices have been cut and HSBC- Markit
PMI survey data for October shows a moderation in both input and output price
indices, giving some relief to policy makers.
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Brent crude hit a high of $ 78.36 in October,
as global recovery has sent a spurt in the price. Last October prices crashed
from an initial $92 to $60 by the end of the month.
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| Interest
Rates
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With the October review setting hopes for a rate hike, the 10 year
benchmark gilt rose to 7.4404% on 23rd October, before calming down to 7.3004%
at the end of the month. |
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While the RBI did not raise key rates, the SLR was raised by one
percentage point and a clear mandate for raising rates in the near future has
been set out. |
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The RBI is expected to raise rates in early January, essentially
to curb inflation expections, however the growth-inflation trade-off is being
closely monitored to restrict damage to recovery.
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Every country is looking at its domestic compulsions to move
towards an exit strategy: Australia raised rates for the second month in a row
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| Exchange
Rates
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Exports during September were valued at US $
13.608 billion, 13.8 per cent lower in dollar terms (8.4 per cent lower
in Rupee terms) than last September, a deceleration of the negative trend.
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Imports during September were valued at US $ 21.377 billion lower
by 31.3 per cent in dollar terms (27.0 per cent in Rupee
terms) than last September.
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Oil imports were 33.5 per cent lower than last September
while non-oil imports were lower by 30.4 per cent. |
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Trade deficit for the period April- September stood at $ 46.73
billion, compared to $76.1 billion last year. |
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FII inflows continue, $1.947 billion in
equity and $1.48 in debt during the month of October. |
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The RBI bought 200 tonnes of IMF gold to
shore up the latter?s finances. Forex reserves stood at $ 285.52 billion on
October 23rd, up $29.552 billion from last year.
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The rupee surged to 45.8 to a dollar in
mid-October but has since fallen again to levels of 47-47.5, as the dollar
recovers some of its lost value. |
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