Economy Review: May 2009

Dr Manmohan Singh formed for the second consecutive term Indian National Congress-led UPA government on 22 May with 19 cabinet level ministers and allotted six of the key portfolios. What is remarkable is that Dr Singh, a world-renowned economist, did not, as in his preceding tenure, contest Lok Sabha elections, but was projected as the Prime Ministorial candidate by the Congress Party. The 714 million Indian voters have given the ruling for stability in the general elections by electing Congress as the largest party with 206 seats and Dr Manmohan Singh, the Congress-nominated Prime Minister claimed support of 274 members of pre-poll UPA alliance parties in the 15th Lok Sabha house of 543 members. Going by current indications,  hampered little by politicking as several other smaller parties have also extended unconditional support,  the UPA government, or rather the Congress Government seems to be serious in using the mandate for providing clean, transparent and effective government and firm and fair handling of several pending economic and social issues. The Lok Sabha elections that were fought more on grounds of personalities than key issues have also thrown up prospects for very congenial policy environment for economy growth and infrastructure investment.

Second half blues drag down IIP in 2008-09
Factory output as measured by index of industrial production (IIP) declined 2.3 per cent in March 2009, according to “Quick Estimates” released by CSO. The IIP grew 5 per cent in the first half, degenerated into a decline in the second half and ended the fiscal with a paltry 2.4 per cent rise -- lower than even the previous low of 2.7 per cent in 2001-02 in the current 15-year series of IIP numbers.  Obviously, global crisis vividly reflected in export declines has caused deep scars on the country’s production machine.

Though, overall industry has no doubt fared very poorly, there are some pointers that tell that “Quick Estimates” in the current year have tended to portray slightly grimmer picture, than warranted. Thus, upward alterations in IIP data in first and second revisions have placed the annual changes for October and January in positive zone, against negative under quick estimates and those for December and February little less red. While this would not change materially the cumulative performance, which is indicative of steep loss in momentum in industrial production, it does indicate some likelihood that growth numbers may look less creepy when firmer data are available.  

Manufacturing that forms nearly four-fifths of IIP performed pitiably particularly in the second half that was doted with four months of annual declines. The average rise in the production index over the year worked out to 2.3 per cent that proved a drag on overall IIP.  Mining expanded 2.3 per cent and electricity a higher 2.8 per cent. In manufacturing, capital goods production increased by 7 per cent and consumer goods 4.4 per cent, one-half and two-thirds the pace in 2007-08. In capital goods, the feat meant end of a solid six-year double-digit growth in output that culminated in 18 per cent average rise in 2006-07 and 2007-08. In consumer goods production, which reflects consumption side of the economy, the 4.4 per cent rise pointed to a third year of slowdown from 12 per cent in 2004-05.  Intermediate goods that include cotton/filament yarns, commercial plywood & particle boards, auto ancillaries, glazed and ceramic tiles, pesticides, paints, etc declined 2.8 per cent. Basic goods that include heavy weight electricity, apart from cement, bars & rods, fertilizers, etc expanded 2.5 per cent.

In two-digit seventeen major subgroups, seven industry groups suffered y-o-y declines in output. Food products (-9.6 per cent), cotton textiles (-2.8 per cent), leather & leather products (-7 per cent) and rubber, plastic, petroleum and coal products (-1.5 per cent) fared miserably, with the rot in cotton textiles and leather and leather products caused by export problems. Beverages, Tobacco and Related Products that expanded at 15.6 per cent speeding from 11 per cent in 2006-07 and 12 per cent in 2007-08 defied general slump. Textile products (including wearing apparel) maintained the pace at 3.7 per cent, though it meant end of export-reflected boom that pushed the average growth to 15 per cent over 2004-05 to 2006-07. Transport equipment & parts slowed to 2.2 per cent, from 2.9 per cent in 2007-08 and 15 per cent two years back.

In investment goods that have bearing on project investment, machinery production was up by a relatively decent 8.7 per cent, though the feat typified a retard from a solid double-digit rise in preceding five years. This would mean that though projects investment is likely to have slowed in 2008-09, it is not completely knocked out. Incidentally, machinery export went up 29 per cent to $8.3 billion during the first three quarters of the year, while their import was up by 22 per cent to $18.9 billion. Cement production rose robustly at 7.7 per cent, finished (carbon) steel that is input to construction, automobiles and capital goods that make projects investment possible expanded in seven months (average rise 3.2 per cent) and fell in other five months (average decline 3.4 per cent) – most of the declines pertained to the problems-ridden second half.

Money supply
The y-o-y growth in broad money (M3) worked out to 20.7 per cent by 8 May, lower compared to 22.4 per cent a year ago. Net forex assets of the banking sector declined 3.7 per cent over the year, against 52 per cent bulge a year ago. RBI credit to government was up 1.83 trillion annually, suggesting a turnaround from Rs 1.47 trillion decline a year ago.

Bank deposits & credit
Aggregate deposits with SCB were up by 22.6 per cent (24.1 per cent) annually by 8 May 2009. Bank credit growth slowed markedly from 24.3 per cent to 17.2 per cent. Banks’ non-food credit declined by Rs 33,417 core by 8 May in the current fiscal, against Rs 25,511 crore drop in the comparable period in 2008-09. Reflecting steep decline in CRR, bank balances with RBI declined by Rs 75,283 crore, against Rs 98,386 crore swell a year ago. Banks’ investment in government securities was up by Rs 254,302 crore, against Rs 198,776 crore a year ago.

Interest rates
Overnight inter-bank call money rates ranged 2.59-3.23 per cent in the first 21 days of May, against 1.87-4.58 in April. The repo and reverse repo rates were at 4.75 per cent and 3.25 per cent, respectively. The cut-off yields on 91 days and 182 days T-bills were at 3.28 per cent and 3.49 per cent at the auction on 13 May. Discount rates on commercial papers (CP) ranged 3.30-10.25 per cent on CP issued in the second fortnight of April, against 6-12.50 per cent in the first fortnight. Yields to maturity (YTM) on longer term Government of India securities traded in the secondary market were at 6.02-7.99 per cent in the second week of May. Prime lending rates of major banks ranged 11.00-12.25 per cent in the week ended 8 May. Deposit rates were at around 6.50-8.25 per cent. Cash Reserve Ratio (CRR) was 5 per cent.

Rupee was traded at 49.54/55 per USD on 15 May. Rupee depreciated annually by around 14 per cent against US$, 22 per cent against Yen and 2 per cent against Euro, but appreciated by 9 per cent against Pound Sterling.

Exports & imports
Exports grow a measly 3.4 per cent
Exports plummeted 33 per cent in March. This was the sixth consecutive month of a drop in export and the sharpest monthly plunge in 2008-09. Notwithstanding dismal performance in the second half, and helped by a robust 31 per cent rise in the first half, the fiscal ended with cumulative export of $168.7 billion, which was however a paltry 3.4 per cent more than in 2007-08 that had seen the pace quicken from 23 per cent to a solid 28 per cent. The performance falling short of $200 billion target set at the beginning of the year and even truncated target of around $170 billion set subsequently factoring impact of global crisis points to a severe setback to export drive that had seen rates of well into double digits for past several years.

Imports expand 14.3 per cent
The country’s import had remained in the positive growth territory till December but fell annually in the last quarter of the year. Cumulative import escalated 14.3 per cent over the fiscal to $288 billion. Oil import was up by 16.9 per cent to $93 billion, while non-oil import grew lower by around 13.2 per cent to $195 billion.

Trade deficit worsens 34 per cent
The trade deficit that was running 53 cent higher till September got moderated to around 34 per cent to $119 billion by the end of the fiscal following import too declining in the last quarter.

Inflation
Inflation as measured by the overall Wholesale Price Index (WPI) worked out to 2.34 per cent by 9 May in the current fiscal, though annually it worked out much lower at 0.61 per cent. The WPI of primary articles worked out 8 per cent higher and that of manufactured products 2.8 per cent, whereas WPI of fuel and power subgroup was 5.3 per cent lower. The Consumer price index (CPI) for industrial workers and urban non-manual workers ran 8-9.3 per cent high in March. CPI of agricultural/rural workers soared 9 per cent in April.

Reflecting paling project investment coupled with high year-ago base, ERIL Index of Cost of Project Inputs declined 6.3 per cent by 9 May –against 12.3 per cent rise a year ago.

Projects investment
Import of machinery & equipment expanded 8 per cent to $24 billion and their export 20 per cent to around $10 billion during April-February 2008-09. Import of electronic goods ($19.5 billion) was nearly five times their export. Export of transport equipment shot up 65 per cent to $10 billion, while their import declined 2 per cent to $7.5 billion. Iron & steel import expanded 10 per cent to $8.8 billion, while their export mounted 14 per cent to $5.3 billion.


Source : ProjectsToday

Printer-Friendly Version E-mail This Article

Loading...