Brief Report on the Indian Economy
Growth rate in the real GDP has broadly been in line with the expectations. The expected growth was of the order of 5.5%, compared to which the GDP grew 5.28% in Q2 this year. The growth rates have been slow mainly due to the slowdown in the industry. Among major components, services grew over 7%, while industry grew 2.8%, and agriculture only 1.2%. However, agriculture was affected by poor rains, and accounted for less than 12% of the GDP. The construction sector added 6.7%, compared to over 10% seen in Q1.
- Inflation: Inflation for industrial workers rose to 9.6%, as measured by the CPI. This figure was 9.4% last October, and 9.1% this September. Compared to October 2011, inflation in food group has risen to 9.9% from 8.7%. This value has fallen from September 2012, when it was almost 11%, mainly due to poor rains this year.
- Fiscal Deficit: Fiscal deficit for the April-October phase is at 71.6% of the budget estimates. It currently sits at Rs. 3.7 trillion. The revenue deficit stands at Rs. 2.9 trillion. Central govt’s total receipts (June-October) are at Rs. 4.1 trillion which account for nearly 42% of the budget for 2012-13. This can be broken down into tax and non-tax revenue, which were Rs. 3.3 trillion, and Rs. 704 billion, respectively. The govt’s total expenditure stands at about Rs. 7.8 trillion. The biggest drop in financing sources was external financing. This accounted for 40% last year, but at Rs. 1.4 billion, this accounted for a mere 1% this year. As a percentage of GDP, fiscal deficit stands at 6.41% (end of September 2012)
- Credit Growth: Credit growth has slowed down mainly across industrial and service sectors. Gross bank credit growth slowed to 15.9% in October, 2012, compared to 18.7% last year. The food credit growth also slowed to 37% compared to 48% last year.
- Power Generation: Power generation has grown 5.9% in October this year. Thermal power generation leads with an 11.7% rise. However, hydel power generation fell below targets, while nuclear power generation rose a mere 1.6%.
- WPI: Wholesale Price Index is up 0.18% in October 2012 against September 2012. The average increase stands at 0.54%, since its launch in 2004. Primary commodities’ WPI declined 0.23%, while primary non-food articles WPI is down 2.3%. Diesel index shot up 5.2%, while mineral oils are up 1.27%.
- Forex Reserves: Forex reserves on 23 November, 2012, stand at $295 billion. These are $9.4 billion lower compared to last year. Currency assets are at $260 billion and gold reserves are at $28.2 billion.
- Capital Formation: Gross fixed capital formation ratio has risen steadily over the last 3 quarters. End of Sept. 2012, this ratio was 33.8%. This ratio was 30% in Dec. 2011, its lowest level in 6 years, but this has steadily made up ground since then. Capital goods fail to explain this rise in the investment ratio, as their production and import level has fallen; hence, this might be an indicator that capital formation is back.
Current figures and Forecasts
|Quarter Ending||Total GDP (in Rs. million)||Industry (in Rs. million)||Agriculture, Fishing and Forestry (in Rs. million)||Services (in Rs. million)|
- Morgan Stanley has raised India’s growth forecast to 5.4% from 5.1% for FY 2013.
- Manufacturing growth has accelerated to a 5-month high in November. HSBC purchasing manager’s index (PMI) has risen to 53.7 from 52.9 in October.
- Foreign Institutional Investors’ limit in domestic debt has been raised by $10 billion.
- RBI has refused to cut key policy rate, which is at 8%; however, they have reduced the cash reserve ratio requirement to 4.25%, which has freed up Rs. 17,500 crore of additional funds. There is a hint that there might be easing of rates policy next year.