The festive season rolls in again and with it, the stock market is
busy spreading cheer. IIP numbers, as we had expected are rising; the HSBC-
Markit PMI survey confirms expansion in manufacturing activity in September
with encouraging news on the new orders front. Vehicle sales are also up and as
the mood sets in for rate hikes next year, credit markets are set to buzz once
more. From this month onwards great times are expected at the consumer markets.
Exports though continue to reel under the impact of international
slowdown, August data shows decline of 19.4%. We can expect this lacklustre
scene to continue through this year as global recovery is still slow, apart
from a few specific sectors where large companies are diverting their
international value chains towards India e.g auto sector where we beat China in
exports earning rave reviews globally. In general, the up-trend appears to be
quite well spread across the country, while Mumbai seems to be the most upbeat,
on back of re-entry of international capital via FIIs. Rains finally did show
up and conditions in the north-west are not as bad as expected a couple of
months back. There are therefore great expectations from the rabi crop now.
One worrying issue that we have highlighted before is the growing
Naxal activity. Naxals are a response to a non-functioning and badly performing
state. The less one trusts the state to act in a fair manner, the more clout
the Naxals get. There has to be a fundamental change in governance to strike at
the roots of this counter-insurgency. Meanwhile, Naxals are concentrated in
areas with large tribal populations, and almost all large projects in these
areas are stuck. The government will be ?forced? to use greater force to
counter the Naxals. But the point remains that rehabilitation has never been a
priority for any government at the state or the centre, thus playing into the
hands of the Naxals. The impact at the macro-level will play out with large
projects being inordinately delayed because no one really trusts the promises
of the government or private entities on rehab in any of the tribal dominated
areas in the eastern states.
Last month we explained why it is not in India?s long term interest
to tread the route of foreign loans even if the option looked attractive in the
short-term. Sooner than we expected, though, the World Bank approved a loan of
$4.3 billion in September ? the second largest loan for a single country in a
single year. Interestingly, this loan is said to be in support for India?s
economic stimulus, a country that the World Bank itself projects to be fastest
growing country in the world next year. Such support may be comforting to some
but we reiterate: high fiscal deficit and a rising debt burden are hardly a
recipe for sustainable growth.
We begin the fifth year of this newsletter and would like to thank
all our readers for their feedback over the years. Please visit our for updated interactive time series graphs of economic
indicators and blog posts throughout the month.