Friday, August 30, 2013

Forecast darkens for Indian economy



Updated: August 31, 2013 (7star news):-





Mumbai: The statistical evidence is piling up that India\'s economy may be in even worse shape than had been thought.



India\'s economy slowed in early summer to its weakest pace since the bottom of the global economic downturn in 2009, government statistics released on Friday evening showed.



The Central Statistics Office in New Delhi said that the economy grew 4.4 per cent in the quarter ended June 30, well below economists\' expectations of 4.8 per cent. The quarter was the weakest since output grew 3.5 per cent in the quarter that ended March 31, 2009.



The accumulating signs of economic distress - slower growth, a widening current-account deficit, higher oil prices and rising inflation in general - suggest that the monthlong fall of the Indian rupee in currency markets may be a symptom of fundamental troubles in the Indian economy, and not just part of the broader difficulties experienced by Asian emerging market currencies in recent weeks.



Hints that the Federal Reserve in the United States may soon shift to a tighter monetary policy have prompted global investors to shift billions of dollars out of financial markets from Sao Paulo to Jakarta to Mumbai, eroding the value of local currencies in developing economies. But the Indian rupee has fallen the fastest of any emerging market currency in the last month, down 8.1 per cent. Broader investor disenchantment with emerging markets has been compounded here by worries about India\'s economy, the third-largest in Asia after China\'s and Japan\'s.



Hardest hit have been the manufacturing and mining sectors. A court-ordered halt to most iron ore mining across India for environmental reasons has hurt steel and other sectors; state governments have been raising taxes on the sector, and broader demand has begun to falter.



\"The fact is, yes, the manufacturing sector has slowed down,\" said Raj K. Singh, the chairman and managing director of the Bharat Petroleum Corp., an oil refining and marketing company that is two-thirds owned by the Indian government and is one of the country\'s largest businesses.



The data was released after stock market and currency trading had ended for the day, despite government promises to stay with the regular Friday morning release. After a week of considerable volatility, the rupee and the Mumbai stock market both had showed modest gains earlier on Friday.



India enjoyed annual growth of 8 per cent to 9 per cent in the years leading up to the global financial crisis but has struggled to reach 6 per cent since then despite heavy government spending and large fiscal and trade deficits.



From corner stores to corporate boardrooms, the consensus in Mumbai these days is that the next few months may see further stagnation, although almost no one expects a steep downturn.



Sitting in his office Friday morning in front of an abstract Indian painting in blues and yellows, Singh voiced concern about a 7.2 per cent drop in nationwide diesel consumption during the first three weeks of August from a year ago. Nationwide diesel consumption was also down 5.9 per cent in July from a year ago.



But heavy monsoon rains have limited the need for diesel in irrigation pumps, making the comparison less clear, Singh cautioned. Rohit Dawar, the top diesel demand expert at the Petroleum Ministry in New Delhi, said in a telephone interview that diesel consumption had been artificially inflated in July and August last year by a peculiarity in government fuel subsidies, since removed, that temporarily made it cheaper to burn diesel instead of other fuels in industrial boilers.



Even allowing for all of these factors, however, \"there is a slight slowdown\" in diesel demand recently, Dawar said.



Plentiful monsoon rains, a key indicator for the Indian economy for thousands of years, have produced lush fields that could yet help stabilize broader measures of the economy in the coming months and forestall a steeper slowdown. While World Bank data show that value added in agriculture is only one-sixth of the economy these days, a good harvest could still play an outsized role in limiting recent increases in food prices.



Inflation is likely to remain a problem, however, given that India relies almost entirely on imported oil, which becomes more expensive with each drop of the rupee. So important is oil to India\'s trade deficit that it was desperate bidding for scarce dollars by Indian refiners that helped to drive the rupee briefly to a record low Wednesday, before the Reserve Bank of India stopped the rout that evening by arranging to transfer dollars from its reserves to oil importers.



\"Prices are rising for everything - petrol is more expensive, vegetables are more expensive,\" said Bharat Hirji Gada, a local shopkeeper.



India has some advantages compared with European and other Asian countries that have seen steep economic downturns following currency declines over the past two decades. The biggest advantage may be that the Indian government has long prohibited borrowing in foreign currencies by poor or middle-class households and by small and medium-size businesses.



Foreign debt has been concentrated among blue-chip companies and wealthy individuals. Many of these loans are to borrowers whose revenue is largely denominated in dollars, limiting their currency exposure, said Haseeb A. Drabu, the chief economist for the Essar Group, one of India\'s heavy industry giants.
News From: http://www.7StarNews.com

No comments:

 
eXTReMe Tracker