Updated on 23rd July 2014         

                                                                                                                                        

       

 

   -- Budget gives little respite on subsidies front, inflationary pressures to persist over the year
   -- Growth to move in 5-5.5% trough this year
   -- Capex plans, if realised for roads and other infra, will push growth only next year
   -- Monsoon progress brings some relief, but overall deficit will still dent consumer markets growth

 

 

 

Recent releases of data have been supportive of tiny green shoots: IIP and PMI data point to the manufacturing sector holding its own, vehicle sales have improved, the power sector has turned in excellent growth, consumer and wholesale price inflation has not stepped up significantly despite the poor monsoon. And yet, all this does not mean the picture has turned all rosy. The recent rise in IIP numbers shows that the decline has stemmed, growth for the manufacturing sector will be positive but low in the 3- 4% range for the next two quarters. The power sector that has shown phenomenal growth last quarter is reportedly in a critical situation for coal supplies, this can go either way depending on how the government manages stocks. For the agri sector, the skies have opened up finally but this is small relief. While the national rainfall deficit is now down to 29%, large parts of important crop regions are still suffering from a deficit greater than 40%. This will not only impact price pressures in certain crops like onions, pulses, sugarcane etc. it will also hit farm incomes.

With parts of India now moving away from a drought situation, markets are looking up, though marginally. It is time for companies to pull out all tricks in the bag to get sales up- small packs, discounts, commissions etc. -  this is not going to be easy as consumers have been battered by persistent inflation and low growth. Yet, while there is no clear pointer from economic indicators for a dramatic turnaround by Diwali, Nielsen’s Global Consumer Confidence Survey shows Indians to be the world’s most optimistic consumers. There will be better days ahead, but we need to wait another year!

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Updated on 4th July 2014 

  • Monsoon hits growth and inflation this year
  • Growth to remain in 5% trough
  • Budget will determine India’s trajectory for the next year

 

With June turning in a 43% below average rainfall, all eyes are on July, as a possible saviour for the economy. It is a sad comment on India in 2014 that the economy is still dependent on the Rain Gods, the strong relation between a good/bad monsoon and growth shows that we lurch from one crisis to another without putting in place any measures to delink. Unfortunately, not only will the delayed and poor monsoon raise the prices of primary food items, it will also call for increased drought relief expenditure, putting additional pressure on the budget. At this point, NREGA type of programmes seem to be the best bet to cushion the impact of drought on the rural economy. These would need to run with changed norms that will provide rural employment while building water-saving facilities.

In a year when the fiscal deficit has already crossed 40% of its target in the first two months, we will need some good budgeting skills that will give short term relief without damaging our long term inflation and growth trends. Energy subsidies have to be reduced, food items should be procured internationally to contain domestic prices, constraints on trade in food items have to be removed, and serious plans have to be laid out and implemented in building efficient infrastructure to boost growth.

India has to survive this year, some drastic moves from the government will at least give us hope for the years ahead. In the meantime, expect subdued consumer demand, and perhaps worse in rural areas.  Net net, overall tight days are in store for everyone, much worse for those dependent upon rural markets and small town India.

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