The Economic Advisory Council (EAC) to the Prime Minister released the ‘Review of the Economy 2008-09’, on 23 January, estimating the GDP growth for the year at 7.1 per cent - lowering the 7.7 per cent projection done in July last. The downward correction reflected a slowdown caused by painful adjustment to abrupt changes in the international economy – steeply rising inflationary pressures emanating from spiraling commodity prices in the first half, to financial meltdown and deeper than anticipated recession in advanced industrial countries in the second half. Investment rate has been estimated at 35 per cent, lower by 2.5 percentage points in the last fiscal, due to financing constraints facing Indian enterprises and downturn in investor confidence in the second half. Headline WPI inflation rate is expected to be close to 4 per cent by end-February, early-March, but CPI inflation is likely to be higher. Current account deficit is projected at 1.9 per cent of GDP. Combined fiscal deficit is likely to be about or in excess of 10 per cent of GDP – well above a comfortable level but a compelling need in the exceptional circumstances of the current year.
Economic conditions in the advanced economies may continue to be recessionary in the first half of 2009, but growth might re-surface in the third quarter of the calendar year. Indian economy will remain relatively weak in the first quarter of the fiscal 2009-10 and slowly pickup thereafter; and is expected to show fairly strong recovery in the second half of the fiscal. Growth rate has been projected between 7.0 and 7.5 per cent or somewhere above that for the year.
IIP: weak, but welcomeThe 2.4 per cent annual rise in Index of Industrial Production (IIP) in November, though weak and over a suboptimal 4.9 per cent year ago, was nevertheless pleasing. It allayed fears that the ‘negative zone’ might persist for the second consecutive month. IIP for October turned out to be slightly worse with 0.4 per cent erosion, against 0.3 per cent estimated provisionally earlier, but the deterioration was in Mining and not in Manufacturing, which tanked a lower 1.1 per cent, against 1.2 per cent provisionally estimated.
Mining grew only 0.5 per cent in November, bringing down the average mount over the first eight months of the current fiscal to 3.4 per cent. Electricity was up 3.1 per cent, against 4.4 per cent average during September-October. Domestic crude oil production declined marginally but coal production did much better with 8.6 per cent rise (4.3 per cent). The annual growth in Manufacturing that accounts for 79 per cent of IIP numbers, turned positive against negative in October. Incidentally, the IIP growth numbers in the current fiscal till November have consistently run lower than year-ago levels with the result that, the average growth of 3.9 per cent over April-November was less than half of 9 per cent in the corresponding period last year and around one-third the speed two years back.
As many as 10 out of 17 two-digit groups under Manufacturing recorded lower output in November and seven two-digit groups over April-November, that included export related items like Cotton Textiles, Textile Products including wearing apparel and leather and leather products. Petroleum refinery output declined in November, pulling down the cumulative rise to 3.9 per cent, half of 8.3 per cent a year ago. Basic Chemicals and Chemical products declined for the fourth month consecutively, but because of robust feat in first four months, the average growth over April-November worked out to around 4.5 per cent.
Consumption, investment demand not so weakCapital goods which though had behaved erratically, but remained in the positive growth phase till October, suffered a Y-o-Y decline in November – the first annual drop after over six years, which pulled down the cumulative growth to 7.5 per cent, one-third the pace in the similar period a year ago. Industrial machinery expanded to 5.5 per cent in November and 7.9 per cent cumulatively; Transport Equipment & Parts declined by 9 per cent with cumulative growth working out to 6.7 per cent. Cement Production expanded to 6.4 per cent (8.1 per cent) and Finished (carbon) steel to 3.3 per cent (7 per cent) over April-November.
Among the other subgroups of IIP, consumer goods production that mirrors consumption demand expanded by 6 per cent average, notwithstanding a dip in October, and bettered the 5.3 per cent rise in the first eight months of 2007-08. The feat reflecting consumer durables shows resilience of the sector when viewed against more than halving of growth rate in overall Manufacturing.
Money supply The Y-o-Y growth in M3 worked out to 19.6 per cent by 02 January, lower than 22.6 per cent a year ago. Net forex assets of Banking sector grew 13 per cent, less than half the pace a year ago.
Bank deposits & credit Aggregate deposits with SCB were up by 13 per cent till 02 January, slowing from 14 per cent in the similar period of 2007-08. Bank credit increased by 12.6 per cent, against 11 per cent in similar period a year ago. Credit-deposit ratio worked out to 73.48 per cent. Food credit was up by Rs.10,219 crore (decline of Rs.5,237 crore). SLR investment increased by 18 per cent (22 per cent). Reflecting steep decline in CRR, bank balances with RBI declined by Rs.59,262 crore, against Rs.49,359 crore bulge in the similar period a year ago.
Interest ratesOvernight inter-bank call money rates ranged 2.50-4.65 in the first 22 days of January 2009, sliding from 5.26-6.56 per cent in December, 4.2-17.54 per cent in November and 5.57-17.89 per cent in October.
Untitled Document
Weighted Call Money Rates: Jan 2008-09 |
| |
Range (%) |
8-Jan |
5.55-7.67 |
8-Feb |
4.82-8.54 |
8-Mar |
5.71-9.32 |
8-Apr |
4.07-7.34 |
8-May |
5.86-7.96 |
8-Jun |
5.71-8.98 |
8-Jul |
5.60-9.67 |
8-Aug |
5.98-9.71 |
8-Sep |
6.14-14.81 |
8-Oct |
5.57-17.89 |
8-Nov |
4.25-17.54 |
8-Dec |
5.26-6.56 |
Jan 09 (up to 22 Jan) |
2.50-4.65 |
The Reverse Repo Rate was at 4 per cent and the Repo Rate at 5.5 per cent. The cut-off yields on 91 days and 364 days T-bills were at 4.58 per cent and 4.51 per cent at the auction on 14 January. Discount rates on Commercial Papers (CP) ranged 10.4-16 per cent on CP issued in the first fortnight of December, against 9-15.5 per cent in the second fortnight of November. Yields to Maturity (YTM) on longer-term Government of India securities were at 5.47-7.7 per cent in the week ended 16 January. Prime lending rates of major banks ranged 12-12.5 per cent in the week ended 09 January. Deposit rates were at around 8.25-10 per cent. Cash Reserve Ratio (CRR) was 5.5 per cent.
Rupee was traded at 48.76/77 per USD on 16 January. Rupee depreciated annually by around 19 per cent against US$, 10 per cent against Euro and 32 per cent against Yen, but appreciated by 6 per cent against Pound Sterling.
Central government financeCentral government finance indicated a gross fiscal deficit (GFD) of Rs.1.77 trillion (+83 per cent) and revenue deficit of Rs.1.41 trillion (+102 per cent) in the first eight months of the current fiscal. Fiscal and revenue deficits have already overshot budget expectation for the year by 32 per cent and 156 per cent, respectively. Obviously, fiscal stimulus packages and the economy slowdown have taken their toll on public finance.
Total expenditure was up by 20 per cent, while non-debt receipt improved just 0.8 per cent. Plan expenditure rose to 21 per cent and non-plan disbursements to 20 per cent. Cumulative gross tax receipt over April-November increased by 18 per cent to Rs.3.57 trillion. Corporate tax increased by 26 per cent, Personal income-tax to 19 per cent, Service tax to 30 per cent, Customs duty to 14 per cent and Excise duty to only 5 per cent.
Ministries of Urban Development spent almost entire annual allocation by November and that of Rural Development disbursed 78 per cent. But Ministry of Power spent 28 per cent, Ministry for Development of North Eastern Region spent 37 per cent, Ministry of New and Renewable Energy 33 per cent and Ministry of Coal only 13 per cent. Ministry of Shipping, Road Transport and Highways disbursed 51 per cent of the annual allowance. Overall, 56 per cent of the budgeted plan spends happened during April-November.
Exports & importsExports declined by 10 per cent in November, which has come over 12 per cent drop in October. The feat has brought down cumulative growth to 19 per cent from 31 per cent in H1, according to DGCI&S data.
Import expanded by 6 per cent in November, slowing further from 11 per cent in October. The cumulative growth fell from 39 per cent in H1 to 33 per cent by November. Cumulative oil imports were US$ 74 billion (+56 per cent) and non-oil imports $130 billion (+23 per cent).
Trade deficit The trade deficit shot up from $53 billion to $84 billion.
Inflation Annual inflation as measured by the overall Wholesale Price Index (WPI) worked out to 5.6 per cent by 10 January 2009, against a recent high of over 12 per cent in mid-September last year. While the WPI of Fuel & Power subgroup was 1.3 per cent lower, that of Primary Articles was 11.6 per cent high and manufactured products 5.9 per cent high. Consumer Price Index (CPI) for industrial workers and urban non-manual workers ran 10.4 per cent high in November. CPI of agricultural/rural workers soared 11 per cent in December.
Project cost escalation as measured by the ERIL Index of Cost of Project Inputs showed a 0.4 per cent decline by 10 January in the current year, with the Y-o-Y mount placed at 7.3 per cent. The WPI of Iron & Steel fell 9.6 per cent and that of Cement stagnated till 10 January in the current fiscal.
Projects investmentWith import of machinery & equipment adding to $14.85 billion and their export to around $5.71 billion, net absorption of machinery from external trade for project investment could be around $9 billion during H1. Import of electronic goods ($10.56 billion) was over four times their export. However, in transport equipment, the country has emerged as net exporter with export at around $5.65 billion and import $3.32 billion. Iron & steel import expanded by 11 per cent to $5 billion, while their export shot up by 47 per cent to $4 billion.
Source : projectstoday