| 6 December 2007
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 Indian
Economy Next Quarter
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Moderation in growth shows up in numbers, we expect further
moderation.
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India grows at 8.9% (July-Sep 07-08)- we maintain estimate of year
growth at 8.4%. |
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Global scenario ahead bleak with expectations of recession in the
US gathering steam.
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Whiff of international stagflation in the air.
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Crude oil prices continue to rise, seriously denting investment.
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Expect widening of tax net next year as subsidies pile up.
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FAO gives alert on grain prices for the year ahead- keep an eye on
your food bill. |
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| India
: Kal, aaj aur kal |
| When everything is going so good ?
exports increasing despite high rupee, growth marginally slower at 8.9% in the
second quarter this year, stock market still in its 19000 highs, tax receipts
bounding up like never before, why do we feel that twinge of worry? Ok, maybe
it?s because we are trained in that dismal science, we find our niggling fears
come from basic household budgeting that is getting out of hand. The government
has asked permission to spend more this year, but says it will still keep to
the deficit target. This is following last year?s pattern where higher tax
revenues compensated for higher expenditure. So as long as they have the money
to pay, what is the problem? The problem is that the extra expenditure is
mostly on subsidies...subsidies on fertilizers and food and since the last two
years on oil bonds to compensate companies for not passing on the high fuel
prices to the ?aam aadmi?.
Two years back, Rs. 11,500 crores were issued as oil bonds, last year it was Rs.
24,121 crores. The government will issue oil bonds worth Rs. 23,457 this year,
this will actually take care of just 43% of the total under-recoveries of the
oil marketing companies, estimated at Rs. 54,935 crores for 2007-08. The burden
of the remaining 57% is to be borne through discounts by upstream refineries or
in the form of losses for the companies themselves. This of course affects the
investment plans of the companies, in fact Moody?s has just downgraded the IOC
credit rating to negative from stable.
Just a few numbers to put the crores of money in perspective: this year budgeted
food subsidies are Rs 25,000 crores, fertiliser subsidy is around Rs 22,000
crores, oil bonds announced so far this year are Rs. 23,457 crores. The govt
budget for school education this year is Rs. 23,000 crores. Clearly, oil bonds
are costing the country in its long-term growth of human and physical capital.
And what is the government doing to set its house right? Not much from what we
can see. The PM sighs over the high subsidies, and the FM worries that
financial sector reforms are slow, while the election agenda concerns itself
with religion. The PM and FM cannot wash their hands off this!
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| Sumita Kale & Laveesh Bhandari |
| 6th December 2007 Indicus Analytics |
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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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GDP numbers for the July-September quarter put India?s growth at
8.91%, slower than last quarter?s 9.3%. Manufacturing sector dipped below
double digits, as anticipated in our newsletters earlier, to 8.6%. |
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Trade, hotels etc. at 11.4% and Construction at 11.1% were the
leading sectors, while agricultural estimates show continued high pace of 3.6%
growth.
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Fluctuating IIP growth gives 6.41% growth in September, bringing
the half-year?s industrial production growth down to 9.2% compared to 11.1%
last year. |
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Infrastructure industries grew at 6% in September. Only
electricity has grown at a faster pace (7.6%) in the first half of this year,
compared to last year (6.7%). All other sectors show dampened growth. |
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But electricity sector growth has been moderating significantly
lately, growing at 5.45% in November compared to 8.8% last year.
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Exports boomed again at 35.65% growth in October, imports up by
25.27%. Growth in non-oil imports higher than oil imports, showing growth
momentum is still strong.
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The ABN-AMRO survey of firms shows easing in manufacturing
activity in November, compared to October, which was the pre-Diwali month.
/td> |
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NCAER survey shows business confidence index up in the
July-September quarter, from the previous quarter, but level is still lower
than last year. Investment climate index stood at 56.1 this year, compared to
59.2 last year. |
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Slowdown in railways - freight traffic grew by 8.03% in the
April-October period, while earnings grew by 11.1%, compared to 9.92% and 16.3%
respectively for the same period last year.
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Telecom sector added 8.05 million subscribers in the wireless
segment in October, compared to 6.71 million last October.
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| Inflation
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Crude prices breached the 99 dollar a barrel
mark briefly in November and are currently settled just below 90 dollars.
Government goes in for oil bonds, rather than fuel price hike, keeping the
genie in the bottle for the moment. |
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Food prices continue to be of concern globally, the FAO news
update cites supply constraints and financial market linkages as causes of high
levels and volatility. |
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Consumer price indices ease in September: CPI UNME down to 5.48%,
CPI AL at 6.99% and CPI IW at 5.5%. |
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WPI inflation has started inching up, as anticipated, at 3.21% in
week ending November 17th. Provisional data has been revised upwards every time
since March this year adding, on an average, 21 percentage points to inflation
numbers.
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Expect WPI inflation data to cross the 4.5% mark by January. |
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| Interest
Rates
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10-year benchmark gilt yield has risen to 7.91% range by the end
of November on tight cash position as CRR hike comes into effect. |
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Fed expected to make another rate cut as the damage in financial
markets through bad loans is more severe than thought.
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While markets ask for rate cuts even in Europe, ECB has remained
immune so far, citing inflationary pressures from crude and food prices. But
euro appreciation and credit crunch could lead to rate cuts here as well. |
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10 year benchmark gilt ranged between 7.85 and 7.94 in November.
Expected to stay in a range between 7.8 and 8.1 in the next two months.
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| Exchange
Rates
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As expected, the rupee stayed in the 39-40 range to the dollar,
pushing closer to 40 by the month end.
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FIIs have been net sellers totalling $ 1450 million in November,
since the PN rules have come into force.
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Forex reserves have risen to $ 272 billion as on November 23rd, a
57% increase over last year. |
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Trade deficit for October stood at $ 7.4 billion compared to 6.9
billion last October.
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Going ahead, the rupee will take its cue from rate moves abroad
and capital inflows. Expected to continue to stay in the 39-40 range for the
next month.
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