tag:blogger.com,1999:blog-20293046190133706442024-03-04T23:16:56.385-08:00Economy WatchGautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.comBlogger25125tag:blogger.com,1999:blog-2029304619013370644.post-14637386047542620292015-08-09T23:33:00.000-07:002015-08-09T23:35:12.661-07:00Inflation Paradox: Why rural CPI inflation is higher than urban CPI inflation<div dir="ltr" style="text-align: left;" trbidi="on">
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<span style="font-family: Arial, sans-serif; font-size: 10pt; text-align: justify;">The main culprit behind the recent increase in India’s CPI
inflation is rural India, while the urban CPI inflation has been largely under
control. To put things into perspective, consider these facts. Total CPI
inflation in November 2014 was 3.3% of which 1.8 percentage points (ppt) were
contributed by rural CPI and 1.5 ppt were contributed by urban CPI. From
November’s 3.3%, India’s CPI inflation surged to 5.4% in June 2015 led by 3.5
ppt contribution by rural CPI and 1.9 ppt by urban CPI. The contribution of
rural CPI inflation has nearly doubled from 1.8 ppt in November 2014 to 3.5 ppt
in June 2015 as compared to relatively lower contribution of urban CPI
inflation from 1.5 ppt in November 2014 to 1.9 ppt June 2015.</span></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyQ7-75d35_TZ4VcnWMJbhVVLWn31K_3Fz72Ubz0ugeaX-vZnP1rd41iUdcaMJM_CnPMvEM0wVKrb8TqZI1I81I41cE_gTtfkZbFSmMvLFfRWlXTzLYhUN_PwrFlEdIy2Z4Qq_3Nf7NBCB/s1600/Inflation.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="275" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgyQ7-75d35_TZ4VcnWMJbhVVLWn31K_3Fz72Ubz0ugeaX-vZnP1rd41iUdcaMJM_CnPMvEM0wVKrb8TqZI1I81I41cE_gTtfkZbFSmMvLFfRWlXTzLYhUN_PwrFlEdIy2Z4Qq_3Nf7NBCB/s400/Inflation.jpg" width="400" /></a></div>
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<span style="font-family: Arial, sans-serif; font-size: 10pt;">What is more paradoxical here is that rural inflation has nearly
doubled since November 2014 at a time when rural demand is going through the
worst down cycle in over a decade. Here are four factors that tell the story of
rural distress. One, nominal rural wage grew merely at 2.6% in May’15, the
slowest pace since June 2005. Moreover, real rural wages have actually witnessed
a contraction in nine of the last 10 months. Two, minimum support price (MSP)
of agriculture produce grew at 1.6% and 2.9%, respectively in fiscal 2015 and
fiscal 2016, the lowest in last 9 years. Three, foodgrain production of rabi
crop contracted by 7.2% in 2014-15 over 2013-2014 as unseasonal rains in March
2015 destroyed a significant chunk of standing rabi crop. Four, the rural
economy is reeling under negative wealth effect as the land prices in rural
areas have fallen by around 20% since the peak of 2013-14. <o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 10pt;">What is more baffling is that milk inflation in rural India, which
is the source of milk supply for the entire country, at 7.9% is 200 bps higher
than milk inflation in urban India. Even inflation for cereals in rural India at
2.8% in June 2015 is 240 bps higher than in urban India. A simple logic suggests
that pace of price increase should be lower in rural India than in urban India
as the latter completely depends on the former for the supply of these items.<o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 10pt;">Similarly, rural inflation for recreation and amusement category,
which includes cost of movie ticket, hotel lodging charges, monthly charges for
TV cable charges etc, has gone up from 4.2% in November 2014 to 5.8% in June
2015 while urban inflation for the same category eased from 5.1% to 4% during
the same period. <o:p></o:p></span></div>
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<b><span style="font-family: "Arial","sans-serif"; font-size: 10.0pt;">Is data collection a
problem?</span></b><span style="font-family: Arial, sans-serif; font-size: 10pt;"> Price data in rural and
urban India is collected by two separate bodies. National Sample Survey Office
(NSSO) collects price data for urban CPI and Postal Office is responsible for
collecting price data for Rural CPI. While data collection is the core function
of the former, it is an additional responsibility on the latter. NSSO has
employed thousands of qualified field officers from statistics/economics
background for the data collection work. On the other hand, price data in rural
India is collected by postmen, who obviously are not the best qualified persons
for the job and it is plausible to have a doubt on the quality of price data
collected by them. Highlighting this issue, a Reuters article had quoted a
postman, “Sometimes during the rainy season, I am unable to go out. Then I have
no option but to fill in the prices of different items myself, ...usually I go
to shops once or twice in two or three months to check price trends and fill in
the price details myself by cross-checking with my wife”. The more worrisome
part is that these numbers are key ingredients for monetary policy
decision-making by the RBI, risking a case of garbage in garbage out. <o:p></o:p></span></div>
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<span style="font-family: Arial, sans-serif; font-size: 10pt;">There is no reason for such a sharp spike in rural inflation to
sustain given that rural demand has slipped to a decadal low. Hence, lower
rural demand would pull the rural inflation down in coming months.<o:p></o:p></span></div>
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<b><span style="font-family: "Arial","sans-serif"; font-size: 10.0pt; line-height: 115%; mso-ansi-language: EN-IN; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">Outlook on monetary
policy: </span></b><span style="font-family: Arial, sans-serif; font-size: 10pt; line-height: 115%;">While
RBI kept the policy rate on hold on 4 August 15, it is looking for more clarity
on impact of monsoon on inflation trajectory and timing of the Fed “lift-off”
before easing the repo rate further. Interestingly, RBI has lowered January 2016
inflation projections by 20bp to 6.1%. CPI inflation, however, is likely to be
at 5.4% by January 2016 due to likely fall in rural inflation and lower crude
oil prices – both are not factored into RBI’s inflation model – providing a
70bp downside to RBI’s inflation projections. Therefore, RBI may prepone
another rate cut of 25bp on 29-Sep’15, given uncertainty over many key issues –
sequential increase in food prices over the past two months, monsoon in Aug-Sep
and fed rate action etc – will be over by then. Moreover, favourable change in
some of the key liquidity enhancing factors – improving CAD, change in
household savings from physical to financial assets, strong deposit
mobilization and low credit off-take – may push liquidity into surplus, leading
to reverse repo becoming the operative rate. It could be an effective 100 bps
cut in interest rates. Therefore, we may not be close to the end of the easing
cycle yet and there is more downside left to the interest rates in India. </span></div>
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Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-32826887400449301512012-10-30T22:42:00.000-07:002012-10-30T22:42:46.026-07:00Easing though liquidity route to continue, 100bps cut in repo rate in 2013<div dir="ltr" style="text-align: left;" trbidi="on">
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<span lang="EN-GB">Due to high
inflation, the RBI today kept the repo and reverse-repo rates unchanged, at 8%
and 7% respectively. However, in order to keep liquidity into its comfort zone,
RBI cut the cash-reserve ratio (CRR) 25bps, to 4.25% of net demand and time
liabilities (NDTL). The move would inject Rs 17,500 cr liquidity into the
system. Taking the liquidity route to ease monetary policy, the RBI has cut the
CRR by 175bps in last ten months. <o:p></o:p></span></div>
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The RBI has
revised its FY13 GDP forecast downward to 5.8% from 6.5% in Jul ’12 policy. The
WPI inflation target for Mar’13 has been revised to 7.5%, from 7% earlier. Both deposit and non-food credit growth has
been revised downward by 100bps to 15% and 16%, respectively.</div>
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<b><span lang="EN-GB">100bps cut in repo rate in CY13.</span></b><span lang="EN-GB"> Given upside risks to inflation
till Dec ’12, a rate cut by RBI until Dec’12 is unlikely. I expect the central
bank to focus on easing liquidity through open market operations (OMOs) and by
slashing cash reserve ratio. I expect WPI inflation to peak out at 8.5% in Dec’12.
Likelihood of a bumper rabi crop and strengthening rupee, coupled with a
favourable base effect, are key factors which could soften WPI inflation considerably
post Dec’12. I expect WPI inflation to soften to 6.1% in Apr’13. Accordingly, I
expect 100bps repo rate cut in 2013 with the first cut starting from Feb-Mar
’13. In its guidance, the RBI also said, “the baseline scenario suggests a
reasonable likelihood of further policy easing in the fourth quarter of
2012-13”. Until then, the RBI is likely to continue with the liquidity
enhancing measures – CRR cuts and OMOs – to support growth.</span></div>
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Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-16457784073603657502012-09-02T02:43:00.000-07:002012-09-02T02:52:24.301-07:00India’s services sector: The last bastion also under siege<div dir="ltr" style="text-align: left;" trbidi="on">
Indian economy has been undergoing a serious economic downturn for last one year. It’s GDP in 1QFY13 grew merely 5.5%, marginally higher than 5.3% in the previous quarter. The bad news is that the services sector, which contributes near 60% of India’s GDP, is getting impacted by the severe slowdown in the manufacturing sector. <br />
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<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="margin-left: auto; margin-right: auto; text-align: center;"><tbody>
<tr><td style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdQBKx0oLQOTmU66rbA5TASoaeuzzSa1ixjYEU90IH2aCrzcZZZV8lYXldb0ALXzZuq9b64SoTAYgvE7-M_Y93RsEOoMTBgbq3Bfn15q5sd9zlPZEyGIsq7vTIdc6wxN4Jnq8xmB5aUK5U/s1600/Picture1.gif" imageanchor="1" style="margin-left: auto; margin-right: auto;"><img border="0" fea="true" height="271" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjdQBKx0oLQOTmU66rbA5TASoaeuzzSa1ixjYEU90IH2aCrzcZZZV8lYXldb0ALXzZuq9b64SoTAYgvE7-M_Y93RsEOoMTBgbq3Bfn15q5sd9zlPZEyGIsq7vTIdc6wxN4Jnq8xmB5aUK5U/s400/Picture1.gif" width="400" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">India's services sector facing a tough time </td></tr>
</tbody></table>
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Growth in services sector decelerated sharply to 6.9% in 1QFY13, - the lowest in over three years. The resilient services sector had been the key driver of India’s GDP until now. The services sector recorded a median growth of 10% in the past 29 quarters. </div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6SumAmIXVMCDfNoTuu5QM8kpeEOWwYUtIU5YnS0Ao4SfEpv4htfyI1_Av5qRhF9chyyqmwCnp0dLE1-6JWBUSPHCnfIj4XFKHsQP6qgZtBeGNsYTApyojdD-3xPNVZ1rdBK8hlHTwIKPn/s1600/Picture3.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" fea="true" height="206" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6SumAmIXVMCDfNoTuu5QM8kpeEOWwYUtIU5YnS0Ao4SfEpv4htfyI1_Av5qRhF9chyyqmwCnp0dLE1-6JWBUSPHCnfIj4XFKHsQP6qgZtBeGNsYTApyojdD-3xPNVZ1rdBK8hlHTwIKPn/s400/Picture3.png" width="400" /></a></div>
<br />
I expect that India’s GDP growth would moderate to 5.8% in FY13. Despite the marked growth slowdown, upside risks on inflation are unlikely to allow RBI to cut repo rate in CY12.<br />
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Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-9122020420757165852011-09-15T06:18:00.000-07:002011-09-15T06:18:47.893-07:00Here we go again!!!<div dir="ltr" style="text-align: left;" trbidi="on">Petrol prices have been hiked by Rs 3.14 a litre due to a sharp 8% depreciation in rupee in last one and a half months. The petrol price hike decision is coming a day before the RBI’s mid-quarter monetary policy meet tomorrow. However, the impact of the petrol price hike on WPI inflation is going to be merely ~7 bp. <br />
<br />
<br />
I still feel that the RBI should pause this time since the growth outlook (both global and domestic) has drastically changed since the last policy meet on Jul 26. Moreover, the debt crisis in Eurozone has worsened further. <br />
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<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDnt_LFgzmiGxLS6L7X1gzH2xs50Jbl6zH1qXN_AZ2hQgdp9cyDKA3o2u5zPuGx98CEZiTSwDP6xvcq7ijavqw5NAGg3L7QOs4EneEWU0G8twEaAqkAJ1V4LQN6uUgb_tnkX5lIc_ZMc1k/s1600/Picture5.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="218" rba="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDnt_LFgzmiGxLS6L7X1gzH2xs50Jbl6zH1qXN_AZ2hQgdp9cyDKA3o2u5zPuGx98CEZiTSwDP6xvcq7ijavqw5NAGg3L7QOs4EneEWU0G8twEaAqkAJ1V4LQN6uUgb_tnkX5lIc_ZMc1k/s320/Picture5.jpg" width="320" /></a></div><br />
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If you remember, during Jun-Jul 2008, the RBI had hiked the rate by 125 bps and within two and a half months it had to cut the rate by 100bps and then by another 50 bps in next twenty days. <br />
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So lesson for the RBI: One should learn from ones mistakes. <br />
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</div></div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com3tag:blogger.com,1999:blog-2029304619013370644.post-31971453024450718622011-05-31T05:15:00.000-07:002011-05-31T05:15:56.881-07:00Indian economy: Growth slowdown or a transitory dip?<div dir="ltr" style="text-align: left;" trbidi="on"><div class="FP-Bullet" style="margin: 0in 0in 6pt; mso-list: none; tab-stops: 19.3pt; text-align: justify; text-indent: 0in;"><span style="font-size: 10.5pt;"><span style="font-family: Garamond;">Indian economy grew 7.8% in the fourth quarter of FY11 (Apr-Mar), following 8.3% growth in the previous quarter. For full year FY11, GDP grew 8.5% as against 8% during FY10.<span style="mso-spacerun: yes;"> </span></span></span></div><div class="FP-Bullet" style="margin: 0in 0in 6pt; mso-list: none; tab-stops: 19.3pt; text-align: justify; text-indent: 0in;"><span style="font-family: Garamond;"><span style="font-size: 10.5pt; mso-bidi-font-weight: bold;">The agriculture sector saw strong growth of 6.6% in </span><span style="font-size: 10.5pt;">QFY11, the highest in last seven years<span style="mso-bidi-font-weight: bold;">. Ironically, agriculture sector has been a great savor for Indian economic growth in FY11. <span style="mso-spacerun: yes;"> </span>Both the major crops (<i style="mso-bidi-font-style: normal;">kharif</i> and <i style="mso-bidi-font-style: normal;">rabi) </i>have witnessed a bumper production, thanks to a normal monsoon last year.<i style="mso-bidi-font-style: normal;"> </i>This year also, the monsoon is expected to be normal, increasing the prospects for healthy agriculture production. </span></span></span></div><div class="FP-Bullet" style="margin: 0in 0in 6pt; mso-list: none; tab-stops: 19.3pt; text-align: justify; text-indent: 0in;"><span style="font-size: 10.5pt; mso-bidi-font-weight: bold;"><span style="font-family: Garamond;">Reflecting the impact of the high interest cost, real investment growth decelerated to 2.2% in 4QFY11, the lowest in eight quarters. Moreover, fixed investment grew only 0.4%, down from 7.8% growth in 3QFY11. However, to some extent, a high base is also responsible for the anaemic investment growth figures. </span></span></div><div class="FP-Bullet" style="margin: 0in 0in 6pt; mso-list: none; tab-stops: 19.3pt; text-align: justify; text-indent: 0in;"><span style="font-size: 10.5pt; mso-bidi-font-weight: bold;"><span style="font-family: Garamond;">Private consumption growth at 8% in 4QFY11 (8.6% in FY11 versus 7.3% in FY10) continues to be a major driver for FY11 GDP. <b></b></span></span></div><div class="FP-Bullet" style="margin: 0in 0in 6pt; mso-list: none; tab-stops: 19.3pt; text-align: justify; text-indent: 0in;"><span style="font-size: 10.5pt; mso-bidi-font-weight: bold;"><span style="font-family: Garamond;">Despite ~10% inflation in FY11, private consumption continued to grow at a healthy pace. With softening of inflation in 2HFY12, I expect private consumption to grow at a healthy ~8% pace. Slowdown in investment growth is a concern. However, forward-looking indicators such as acceleration in credit flow to industry (ex infra), sequential improvement in industrial growth and pricing power with manufacturers show likelihood of investment recovery in the second half of FY12. With a normal monsoon and investment recovery in 2H, 8.5% GDP growth looks likely in FY12. </span></span></div><div class="FP-Bullet" style="margin: 0in 0in 6pt; mso-list: none; tab-stops: 19.3pt; text-align: justify; text-indent: 0in;"><span style="font-size: 10.5pt; mso-bidi-font-weight: bold;"><span style="font-family: Garamond;">Therefore, according to me, strong private consumption growth, pick in investment and buoyant exports outlook make me believe that the Indian growth story is likely to remain strong and all the long term fundamentals are very much intact. </span></span></div></div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com5tag:blogger.com,1999:blog-2029304619013370644.post-52021370735356642292011-03-31T21:58:00.000-07:002011-03-31T22:10:02.378-07:00India’s current a/c deficit narrows on record high software exports<div dir="ltr" style="text-align: left;" trbidi="on"><div style="text-align: justify;"><span style="color: black;">India’s current account deficit (CAD) for 3QFY11 narrowed to US$9.7bn or 2.3% of GDP, against US$12.2bn or 3.5% of GDP a year earlier. Three key reasons behind the improvement in the current account deficit: One, the software services exports in 3QFY11 increased 14.6% to US$14.7bn, the highest ever in a quarter, against US$12.9bn a year ago. Two, workers’ remittances rose 5.2% to US$13.4bn in 3QFY11 from US$12.8bn in the year-ago quarter. Three, A US$2 bn delta came from the non-software services exports. Though the balance of non-software services exports in 3QFY11 were a drag (a US$2.6bn deficit), it has markedly improved from the US$4.7bn deficit of the year-earlier quarter.</span></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcMyzWKfX43cX5oNykEx5NxDN9u_ql5di7loo2i9U2-rCEb7lIt6lcoR6lZDCAGGGdcYmBJKYPgSZ3_DE9jYrLIlPCGfcpXzm8eXTeuoFMvv8BkkBu8-d6nkuTKogwV19m4syCIJj1drWa/s1600/Picture2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="400" r6="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcMyzWKfX43cX5oNykEx5NxDN9u_ql5di7loo2i9U2-rCEb7lIt6lcoR6lZDCAGGGdcYmBJKYPgSZ3_DE9jYrLIlPCGfcpXzm8eXTeuoFMvv8BkkBu8-d6nkuTKogwV19m4syCIJj1drWa/s400/Picture2.jpg" width="353" /></a></div><br />
<div style="text-align: justify;"><span style="color: black;">On the capital account front, thinghs were not too rosy. The capital account surplus rose only marginally to US$14.9bn in 3QFY11, against US$14.6bn a year ago. While inflows under portfolio investment, external commercial borrowing (ECB) and banking capital gained some traction over 3QFY10, inflows under foreign direct investment (FDI) and short-term trade credits were subdued. Notably, the ECB inflows rose to US$3.6bn in 3QFY11, more than doubled from the same quarter a year earlier. </span></div><div style="text-align: justify;"><span style="color: black;"><br />
</span></div><div style="text-align: justify;"><span style="color: black;">The current account deficit is likely to narrow further in 4QFY11 for two reasons: (a) high exports growth vs. imports resulting in narrowing of the merchandise trade deficit; (b) higher invisible surplus on buoyant software services exports and strong remittances. However, high international crude oil price, if persists, may pause a threat to the improvement in India’s current account balance. Therefore, the rupee is likely to be on the upward trajectory in the next two quarters. I expect rupee to reach around 43 per dollar by the end of June quarter. </span></div><div style="text-align: justify;"><br />
</div></div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com1tag:blogger.com,1999:blog-2029304619013370644.post-76937523079059729202011-03-17T04:51:00.000-07:002011-03-17T04:51:21.996-07:00Cost of loan likely to increase further as the RBI up the policy rate<div dir="ltr" style="text-align: left;" trbidi="on">Continuing with its calibrated monetary tightening cycle, the RBI today hiked the repo and reverse repo rates by 25bps each. This is a reaction to the high and sticky inflation, which continues to be nearly double the medium-term target of the RBI since Jan ’10. RBI now projects WPI inflation at 8% by end-Mar ’11. <br />
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The repo rate – the rate at which banks borrow from the RBI – now stands at 6.75% and the reverse-repo rate – the rate at which banks park money with the RBI – at 5.75%. Today’s rate hike in the policy rates marks the eighth consecutive hike since Feb ’10. Overall, the RBI has hiked repo rate by 200bps, reverse-repo rate by 250bps and CRR by 100bps in the ongoing rate hike cycle. However, the effective rate hike in the operative rate has been 350bps as the operative rate has changed from reverse repo to repo rate due to change in the liquidity situation.<br />
<br />
The RBI has increased WPI inflation projection for end-Mar ’11 to 8% from 7% earlier. WPI inflation inched up, to 8.3% in Feb ’11, after softening to 8.2% in Jan ’11. Notably, the RBI has mentioned that non-food manufactured products inflation continues to be Ill above its medium-term trend – it rose sharply, from 4.8% in Jan ’11 to 6.1% in Feb ’11 – indicating that producers are able to pass on higher input prices to consumers. <br />
<br />
What next. The food articles inflation has started considerably softening on account of improved supply and the trend is expected to continue on a likely bumper rabi crop, which will hit the market early next month. The main pressure to inflation, going forward, is likely to come from manufactured products. I expect inflation to remain elevated (7% average) in FY12. I expect the RBI to hike policy rates once more by 25bps each in the next monetary policy meeting on 3 May ’11.<br />
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Now, the cost of loans is likely to go up further. Clearly, this negative for the Real estate, auto industry and other interest rate sensitive industries. So, guys, be ready to face a high interest rate environment and plan your expenditure accordingly. </div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com2tag:blogger.com,1999:blog-2029304619013370644.post-19956761419252251892010-12-16T02:36:00.000-08:002010-12-16T02:36:15.009-08:00India's central bank takes a breather<div style="text-align: justify;"><span style="color: blue;">The RBI has taken a breather after following the aggressive tightening path since beginning-CY10. As headline inflation has started softening, managing liquidity seems to have become the main focus area for the RBI. We expect further tightening in policy rates, in FY12.</span> </div><div style="text-align: justify;"><strong>Key policy rates remain unchanged.</strong> In line with expectations, the RBI left the repo rate (at which banks borrow from the RBI) and the reverse-repo rate (at which banks park money with the RBI) unchanged, as per its mid-quarter monetary policy review today. The cash reserve ratio (CRR) was kept unchanged at 6%. </div><div style="text-align: justify;">Break from policy rate hikes. After six consecutive policy rate hikes since Feb ’10, the RBI has taken a breather. The RBI has hiked repo rate by 150bps, reverse-repo rate by 200bps, and CRR by 100bps since beginning-CY10.</div><div style="text-align: justify;"><strong>Focus on liquidity.</strong> In a bid to address the prevailing acute liquidity shortage in the system, the RBI took two major steps – One, it cut the statutory liquidity ratio (SLR) by 1%, to 24% of net demand and time liabilities (NDTL). This, however, has been counter-balanced by reducing the additional liquidity support under the LAF announced on 28 Nov ’10, to 1% of NDTL from 2%. Two, it announced that it would purchase government securities of `480bn within the next month through the open market operation (OMO).</div><div style="text-align: justify;"><strong>Liquidity to remain tight.</strong> Despite RBI’s measures, we do not expect significant improvement in the liquidity situation in the near term. Post mid-Jan ’11, however, the tight liquidity situation may start easing.</div><div style="text-align: justify;">RBI retains broad projections. The RBI has kept the FY11 GDP growth projection at 8.5%. As regards inflation, the RBI has indicated possible upside risk to its Mar ’11 target of 5.5% in the face of rising international commodity prices. WPI inflation considerably softened to 7.5% in Nov ’10, the lowest since Jan ’10.</div><div style="text-align: justify;"><strong>Policy rate outlook.</strong> In line with our estimates of softening of both inflation and real growth rates in 2HFY11, we expect the RBI to maintain policy rates at current levels for remaining-FY11. However, RBI’s medium-term focus is likely to remain biased towards tightening. After softening to ~5.5% levels by Mar ’11, we expect inflation to start inching up post May ’11. Hence, we believe key policy rates would be further tightened by another 75bps in FY12e. Transmission of monetary tightening would keep upward bias for both lending and deposit rates</div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-7678565292867006492010-07-27T21:25:00.000-07:002010-07-27T21:25:37.311-07:00India moving ahead of peers by adopting hawkish stance on monetary policy<div style="text-align: justify;">In its first quarterly review of Monetary Policy FY11, the Reserve Bank of India (RBI) hiked the repo rate (the rate at which banks borrow from the RBI) by 25bps to 5.75% and the reverse repo rate (the rate at which banks park funds with the RBI) by 50bps to 4.5%. The 50-bps hike in reverse repo rate was higher than the street expectation (25bps hike in both rates). Since the repo rate is the operating rate in the current liquidity shortage scenario, the 50 bps hike in the reverse repo rate will have only a limited role to play. From the policy document it is clear that the RBI’s focus has shifted to anchoring inflationary expectations in the economy.</div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjurcmLBFp-_RXV0yI3GavQbi_FPOwfnwi9pz3BZW5vD6egaL_AW38rThVSniSTrj78vMURHmiPzgUZY_Kj8OxhkeZ1k0W1vKNEf8A6y0sVUJXEPufwjphR_H3ALD2RUkhkJj93PirvRkCB/s1600/Picture11.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="171" hw="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjurcmLBFp-_RXV0yI3GavQbi_FPOwfnwi9pz3BZW5vD6egaL_AW38rThVSniSTrj78vMURHmiPzgUZY_Kj8OxhkeZ1k0W1vKNEf8A6y0sVUJXEPufwjphR_H3ALD2RUkhkJj93PirvRkCB/s400/Picture11.png" width="400" /></a></div><div style="text-align: justify;">Though the RBI seems sanguine on the economic recovery front, it showed deep concerned about the high inflation in the economy. The central bank increased the economic growth forecast for fiscal year 2010-11 to 8.5% from 8% earlier and the year-end inflation target to 6% from 5.5% earlier. </div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjaXY3dvDUHuSlkzoQRkyNwxPY34d5dv4SfY707oeo8nDFQU_bu12JghKkPKtc6D25MM2oHqDgop4i-vOOewSHZJfpfvGxjyEDXjDLSwFQoe7i5mayZsASC0Ck5t_CvE9voA9IumyQGwwLg/s1600/Picture12.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="230" hw="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjaXY3dvDUHuSlkzoQRkyNwxPY34d5dv4SfY707oeo8nDFQU_bu12JghKkPKtc6D25MM2oHqDgop4i-vOOewSHZJfpfvGxjyEDXjDLSwFQoe7i5mayZsASC0Ck5t_CvE9voA9IumyQGwwLg/s400/Picture12.png" width="400" /></a></div><br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiU4QERJXLOA8OARFU6c7_WDcMI8vWIHB1ST9SB8rZM2YS11STDQeiO5lxfc_qXBdVydP0NxMahOTQr0nprLq9dVvrELoFTIlCbQ1fWgh51-YoPtQLsLjEzqU3AZsajMxkRLA02-dGPRYUc/s1600/Picture13.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="273" hw="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiU4QERJXLOA8OARFU6c7_WDcMI8vWIHB1ST9SB8rZM2YS11STDQeiO5lxfc_qXBdVydP0NxMahOTQr0nprLq9dVvrELoFTIlCbQ1fWgh51-YoPtQLsLjEzqU3AZsajMxkRLA02-dGPRYUc/s400/Picture13.png" width="400" /></a></div><div style="text-align: justify;">Another important announcement is that the RBI will now undertake mid-quarter reviews roughly at the interval of about one and half months after each quarterly review. Now this is welcome step, given the fact that in recent years, there have been several occasions when the RBI had to take off-cycle policy actions in response to macroeconomic developments. In fact the frequency of the intra policy actions had increased off late. For example, intra policy rate actions were taken in April, June, Sep and Dec in 2008; in Jan and March in 2009; and in March and July in 2010 so far.</div><div style="text-align: justify;">On the policy rate outlook, assessing the current scenario, any change in policy rates during the 16 Sep ’10 mid-quarter review is unlikely. However, I expect 25-bps hike in repo and reverse-repo rates in the second quarterly monetary policy review on 2 Nov ’10</div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com2tag:blogger.com,1999:blog-2029304619013370644.post-46308596327449260572010-06-09T22:19:00.000-07:002010-06-09T22:24:33.200-07:00Is the recent recovery in the global economy sustainable?<div style="text-align: justify;">The developed economies like the US, Canada, Japan, Germany, France, S. Korea all have managed to pull out of the so called worst recession in seven decades and have posted quite impressive GDP numbers in last two-three quarters. The two countries which are leading the world economic growth namely China and India have also clocked stellar GDP growths in recent quarters. In addition to that, the US labour market has also shown signs of improvement in last two-three months. Data prints from the US housing market have been quite an icing on the cake in the recent months. </div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;">But as we all know that much of it is the outcome of extremely easy monetary policy and gigantic fiscal stimuli launched around the world in last one year and a half. Now the key question at this juncture is that once the policy makers start a gradual exit from the monetary and fiscal stimuli, will the growth momentum sustain? Or the global economy will fall flat once the monetary and fiscal support inevitably withdrawn. And the on-going Europe debt-crisis adds further to the uncertainty to the outlook of the global economy.</div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;"><strong>Government contribution made all the difference:</strong> Government spending has been the key factor behind the strong GDP growth witnessed by major economies in the world. Given the fact that fiscal deficit has increased sharply in most economies in the world, the government support to the economy can not sustain for long. And ultimately the governments will have to withdraw their support which is expected to start in 2010. I, therefore, don’t expect 2010 to be a year of robust economic growth. In fact, according to me India’s GDP growth for FY11 is likely to remain lower than that of FY10. Nevertheless, I expect the macro fundamentals of Indian economy to improve significantly in FY11. </div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;">Now talking about the sustainability of the growth momentum, the probability of a double dip recession is very low at this juncture. But the global economy is going to take a while to reach the normalcy level and the global economic recovery process is likely to be rather gradual.</div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-13310646520098529332010-02-26T08:01:00.000-08:002010-02-26T08:01:11.477-08:00India's GDP growth is more realistic in Dec 09 quarter<div style="text-align: justify;">India’s GDP grew 6% in 3QFY10, following strong growth of 7.9% in 2QFY10. The number was substantially lower than consensus’ estimates (6.8%). The major surprise came from social and personal services, which declined -2.2% in 3QFY10. If you look at he numbers more closely, you will find that this growth number (6%) is actually better than the previous quarter growth of 7.9%. You must be wondering that this guy has lost it completely. Well, I will just say let the numbers speak to you. Here is the table. </div><div style="text-align: justify;"></div><div style="text-align: justify;"><br />
</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXuncKZFlGCks9fsQooVAEHWQpdmM8q_W1DKNLZFSHIRcIdJlKZKdy_lA6iz9uCgxU3mnktRowGn0f3sTzrR23-3ClZsmmJ4hK4v14IK7_PwN0J91Ry0bp7w0Dim36WxvbTv61c4aNest0/s1600-h/1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="266" kt="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhXuncKZFlGCks9fsQooVAEHWQpdmM8q_W1DKNLZFSHIRcIdJlKZKdy_lA6iz9uCgxU3mnktRowGn0f3sTzrR23-3ClZsmmJ4hK4v14IK7_PwN0J91Ry0bp7w0Dim36WxvbTv61c4aNest0/s320/1.png" width="320" /></a></div><div style="text-align: justify;">The growth rate of 6% in 3QFY10 seems to be more close to reality than last quarter’s growth rate, which was inflated by government consumption. In 3QFY10, government consumption declined 10.3%, following an increase of 26.9% in 2QFY10. Excluding government consumption, GDP (at constant market prices) grew impressively by 8.5%, as against 4.8% in 2QFY10. That is why I was saying that this quarter growth is better than that of the previous one. </div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;">Well this is not it. There are some more interesting points to come. Industry which has 28% weight in the overall GDP, witnessed a strong rebound in 3QFY10. It grew by 11.6%, way ahead of the 7.5% growth average recorded in the past decade. Manufacturing grew a whopping 14.3%, the highest growth in more than a decade. </div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;">On the down side, services, having a weight of 56% in the GDP, recorded a decade low growth of 6.3%, dragging down economic growth. Another problem for the economy is its low investment growth. Real investment grew at a tepid rate of 5.1% in 3QFY10. Investment growth continues to be sluggish with a meager 2.4% average growth in the last seven quarters. The investment cycle, however, seems to have bottomed out. Nevertheless, we do not expect a strong recovery in investment before FY12. </div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;">The Economic Survey FY10 estimates FY11 GDP growth at 8.2%, which seems quite optimistic. Until India witness a strong recovery in the investment cycle, which was the main driver of growth during FY04-FY08, returning to the 9% kind of growth levels seems unrealistic. Investment growth was around 18% during the FY04-08 period. Furthermore, fourth quarter GDP numbers from many developed economies indicate the fragility of the much-talked-about global recovery. </div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com2tag:blogger.com,1999:blog-2029304619013370644.post-8054931061446988332010-02-08T09:55:00.000-08:002010-02-08T09:55:02.972-08:00RBI takes on liquidity<div style="text-align: justify;">In a rather hawkish move, the RBI increased the cash reserve ratio by 75 basis points to 5.75% in order to address the ongoing liquidity overhang in the system. Other policy rates were left unchanged. The move is expected to drain Rs 360 billion from the system. In the last one month, the overall liquidity in the market has been around Rs 600 to Rs. 800 billion. So factoring in RBI’s rate action, there will still be around Rs 300 billion to Rs 500 billion left in the system. </div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;">The comforting factor here is that central government is done with its massive market borrowing programme for the current fiscal. Nevertheless, the move is expected to raise short-term rates and will impact banks negatively. Banks would lose out on account of the increased CRR outgo. Given the current credit demand and deposit growth scenario, it would be difficult for banks to even partially pass-through the same through either a hike in lending or a cut in deposit rates.</div><div style="text-align: justify;"></div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;">As the wholesale price inflation surged to 7.3% in Dec ’09 and the consumer price inflation remains in the teens, the RBI is now focusing more on managing inflationary expectations. The RBI, however, has pointed out that the recovery is yet to fully take hold and that it would require sequenced withdrawal of exit from the current extremely accommodative regime.</div><div style="text-align: justify;"><br />
</div><div style="text-align: justify;">To sum up, the recent aggressive tightening in the CRR indicates that the RBI will not take any rate action until the next policy review on 20 April 2010. </div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-68686562696560101582009-12-10T11:40:00.000-08:002009-12-10T11:40:58.643-08:00Food prices on fire, I see some actions coming from the RBI<div style="text-align: justify;">At a time when most economies in the world are reeling under deflationary pressure, India stands isolated with intimidating inflationary pressure. And believe me it’s a very dangerous situation when it comes to food inflation in India. I have actually seen my kitchen bill rising like anything every month. I was shocked to see my kitchen bill in Nov 09; it has swollen by around 75% as compared to Mar 09 figures. This is my own experience with mounting inflation in my country. Let’s see what the government’s estimates talk about inflation.<br />
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</div><div style="text-align: justify;"><span style="color: orange;"><strong> Primary articles inflation up.</strong></span> For the week ended 28th Nov ’09, the annual rate of inflation for primary articles stood at 13.9% (yoy) against 12.5% for the previous week and 11.6% during the corresponding week last year.<br />
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</div><div style="text-align: justify;"><strong><span style="color: orange;"> Food inflation at a decadal high.</span></strong> Inflation for the primary food surged to 19.1%, the highest level in a decade. Food inflation has reached the same level of Dec ’98 when the then ruling National Democratic Alliance (NDA) had lost power at the centre because of high food prices. Therefore, there will be huge pressure on the current government to tame the mounting inflation. <br />
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</div><div style="text-align: justify;"><strong><span style="color: orange;"> What’s the outcome?</span></strong> We expect the government to take some measures to rein in high food inflation. But the irony is that the government does not have many options to control food prices. Even if it opts for imports, it is not going to help because international prices of most of the food items are either higher or at par with the domestic prices. It also can not offer highly subsidized food due to tight fiscal situation. Nonetheless, to avoid the political pressure the government should be seen doing something to tackle the high food prices. Thus, we would not be surprised to see some actions coming from the Reserve Bank of India (RBI) earlier than expected. A hike of 50 bps in the cash reserve ratio (CRR) seems imminent. Moreover, the probability of a hike in the repo/reverse repo in the current fiscal has also increased. <br />
</div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-60206610203535779792009-10-09T00:03:00.000-07:002009-10-09T00:10:59.173-07:00Hey Readers 9 Oct '09<div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;">Here I am with my views and expectations on the Indian economy once again. This post is coming after a really long time. Well I guess rather than wasting time in this let me get down! (I mean) to writing about the economy. <br />
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</div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;">Macroeconomic indicators show further improvement:<br />
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</div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;">As I have mentioned in my previous posts, the outlook for the Indian economy continue to improve further. And the latest data releases on industrial production, manufacturing PMI and trade come as an eye witness to that. Industrial production has rebounded strongly, as shown in the last two data releases. The IIP recorded healthy growth of 6.8% in Jul ’09, after recording a stellar growth of 8.2% in Jun ’09. The next industrial production data will be released soon on 12 Sep09. I expect the IP growth to be ~ 8% for Aug09 month. <br />
</div><div class="separator" style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhChlNySDfQAwl5tWjMYziQwszg5ll1JW1lrkiKl4qxCLvu9MF7kDQEfOizWf6JLjI__vGxdJlwvlHjXsVlSUKIyFkmgz-G8fE8T3CZdeLeAPRmjVMrqYnGxWqU2Fga9r4bRAWPKjGgoSre/s1600-h/Picture2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img $r="true" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhChlNySDfQAwl5tWjMYziQwszg5ll1JW1lrkiKl4qxCLvu9MF7kDQEfOizWf6JLjI__vGxdJlwvlHjXsVlSUKIyFkmgz-G8fE8T3CZdeLeAPRmjVMrqYnGxWqU2Fga9r4bRAWPKjGgoSre/s320/Picture2.jpg" /></a><br />
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</div><div style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; text-align: justify;">Exports still negative but… Exports growth has been in the negative territory for past nine months on weak global demand. But if we look at the actual levels, foreign trade has already bottomed out in Feb09 as seen in the following graph. On an annual basis also my projections say that positive exports growth is very much in the offing. (Possibly in Sep09)<br />
</div><div class="separator" style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKEZnBbG5JezwbUDUPVbeft1So43_UrsSc4wYcDnnJfj-JeiFH2PfDpv4Srr9ZqS518og3U4r7Bsj4uFj_8GoolJkEPJVqODVUARSfRtVZzjxtdvdJp80BBheFU8loU-fa7hgsV6Hl0jj-/s1600-h/Picture3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img $r="true" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgKEZnBbG5JezwbUDUPVbeft1So43_UrsSc4wYcDnnJfj-JeiFH2PfDpv4Srr9ZqS518og3U4r7Bsj4uFj_8GoolJkEPJVqODVUARSfRtVZzjxtdvdJp80BBheFU8loU-fa7hgsV6Hl0jj-/s320/Picture3.jpg" /></a><br />
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</div><div style="text-align: justify;">Agriculture growth remains a cause of concern … but there is a silver lining here also. This year India recorded the worst monsoon season in terms of rain deficiency since 1972, with 24% less rainfall than average. The poor rainfall is going to have an adverse impact on the ‘Kharif ’ crop (summer crop ex. paddy). However, post-monsoon rains could improve the prospects of a better ‘Rabi’ crop (winter crop ex. wheat). Also, the share of ‘Rabi’ crop in the total agri production has been increasing over the years. So if we get a better ‘Rabi’ crop', this will compensate for the loss in the ‘Kharif’ crop. Historically, rainfall has been found to have a strong correlation (0.6%) with agriculture growth.<br />
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</div><div style="text-align: justify;">Overall, India’s growth prospects are quite bright as compared to the developed countries though the poor monsoon has diluted the growth outlook to some extent. What’s your take on it?<br />
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</div><div style="text-align: justify;">PS: In my next post I will try to cover RBI’s take on key interest rate and inflation.<br />
</div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com2tag:blogger.com,1999:blog-2029304619013370644.post-64283865981874714612009-07-29T02:27:00.000-07:002009-07-30T01:53:40.538-07:00Analysis on the RBI’s monetary policy for 2009-10<div style="text-align: justify;"><span style="color: rgb(0, 0, 0);">The Reserve Bank of India (RBI) left its key policy rates unchanged in its first quarterly review of monetary policy for 2009-10 on July 28th. The repo rate – the rate at which banks borrow money from the RBI – was left unchanged at 4.75%, the reverse repo rate – the rate at which banks lend funds to the RBI – remained at 3.25% and the Cash Reserve Ratio (CRR) - the percentage of deposits that banks keep with the central bank was kept unchanged at 5%. The decision, however, didn’t surprise the market at all for its obviousness. The RBI had reduced the repo rate six times, amounting 425 basis points since Oct’08 in order to ensure enough liquidity in the system. As the liquidity situation has been quite comfortable for last 5-6 months and the inflation seems to be posing a threat in the second half of the current fiscal year, RBI’s decision of maintaining a status quo is completely plausible.</span>
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<br /></div><div style="text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPdX4h5S4L0xW9GwhIUgSBPr2BHXBuRq7nKk9s1i5d0UQ8U6Q2SVwIfbzjNqR_QMtLTZukZNK6DjIG2Jiq2yVIjPM0JQ9d15s1hC4ec9A0FbwG6JuNxl-TcZ5LZXNzNwhYIWTS760DqwoL/s1600-h/RBI+policy.png"><img style="cursor: pointer; width: 400px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPdX4h5S4L0xW9GwhIUgSBPr2BHXBuRq7nKk9s1i5d0UQ8U6Q2SVwIfbzjNqR_QMtLTZukZNK6DjIG2Jiq2yVIjPM0JQ9d15s1hC4ec9A0FbwG6JuNxl-TcZ5LZXNzNwhYIWTS760DqwoL/s400/RBI+policy.png" alt="" id="BLOGGER_PHOTO_ID_5363813629654549778" border="0" /></a>
<br /><meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="PowerPoint.Slide"><meta name="Generator" content="Microsoft PowerPoint 11"><!--[if !mso]> <style> v\:* {behavior:url(#default#VML);} o\:* {behavior:url(#default#VML);} p\:* {behavior:url(#default#VML);} .shape {behavior:url(#default#VML);} v\:textbox {display:none;} </style> <![endif]--><title>Slide 1</title><meta name="Description" content="7/29/2009"><!--[if !ppt]--><style> .O {font-size:149%;} </style><style media="print"> <!--.sld {left:0px !important; width:6.0in !important; height:4.5in !important; font-size:103% !important;} --> </style><!--[endif]--><o:shapelayout ext="edit"></o:shapelayout><o:idmap ext="edit" data="1"></o:idmap><span style="font-size:78%;"><p:colorscheme colors="#ffffff,#000000,#808080,#000000,#bbe0e3,#333399,#009999,#99cc00"> </p:colorscheme></span><div shape="_x0000_s1026" class="O" style=""><span style=";font-family:Garamond;font-size:12;" ><span style="font-size:78%;">* With upward bias, ** end March
<br /></span></span></div> <span style="font-size:78%;"></span><span style="color: rgb(255, 153, 0); font-weight: bold;">Growth outlook:</span>
<br /><span style="color: rgb(0, 0, 0);">The RBI looked more sanguine about the domestic growth outlook yesterday than the last policy review in Apr’09. According the policy document, the business outlook in the country has turned positive signaling a revival of industrial activity. However, the RBI expects the export demand to continue to remain weak in coming months and the services sector may experience the drag of sluggish external demand and the lagged adverse impact of the weak industrial growth. Also, the below normal monsoon this year is likely to pull down the agriculture production for the Kharif season crop. Weighing all these factors, the RBI’s the growth projection for GDP for 2009-10 is placed at ‘6% with an upward bias’. I fee the RBI has been a tad conservative about the GDP forecast. As the recent macro-data points to a better economic environment, the economy is likely to grow at 6.5% in 2009-10.</span>
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<br /><span style="font-weight: bold; color: rgb(255, 153, 102);">Inflation outlook:</span>
<br /><span style="color: rgb(0, 0, 0);">On inflation front, RBI expects the annual inflation to go up to 5% by the end of March 2010. It says that the WPI-based inflation, which has slipped below zero, has only statistical significance and doesn’t reflect a contraction in demand and may not persist beyond a few more months. However, it expressed concern about the elevated food inflation and an uncertain monsoon outlook could further accentuate the problem.</span>
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<br /><span style="color: rgb(0, 0, 0);">Regarding the</span><span style="font-weight: bold; color: rgb(0, 0, 0);"> money supply growth,</span><span style="color: rgb(0, 0, 0);"> the RBI projects the M3 money supply to grow at 18% during 2009-10. Furthermore, the bank deposit and the bank credit are projected to be growing at 19% and 20% respectively in 2009-10.</span>
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<br /><span style="color: rgb(0, 0, 0);">But I see the RBI will be having a bigger responsibility this time. As the fiscal deficit has been estimated at 6.8% of the GDP in 2009-10, the government plans to withdraw Rs 4.5 trn from the market in the current financial year. This has hardened the interest rate in the bond market. At the same time the RBI will have to ensure that there is enough liquidity left in the system so that the private sector also has easy access to the funds. But if the government goes little aggressive on the disinvestment plans, the situation could improve significantly with foreign money flowing into the economy.</span>
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<br /><span style="color: rgb(255, 153, 102); font-weight: bold;">Outlook for Rupee</span><span style="color: rgb(255, 153, 102);">:</span>
<br /><span style="color: rgb(0, 0, 0);">The RBI’s decision of keeping the policy rates unchanged doesn’t seem to have much impact on the rupee. However, a revival in FII inflows and an improved domestic growth outlook are likely to provide a support to the rupee in the coming months. Risk aversion is also expected to subside on possible global economic recovery towards the end of 2009. Therefore, I expect the rupee to inch <span style="font-weight: bold;">towards 46.50-47 levels by end of Mar 2010</span>. In the immediate term, however, rupee could continue taking cues from the direction of domestic equity markets and from the dollar’s movement against other major currencies.</span>
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<br /><span style="color: rgb(0, 0, 0);">To </span><span style="font-weight: bold; color: rgb(0, 0, 0);">sum up</span><span style="color: rgb(0, 0, 0);"> the whole thing, I would like to add that the nine-month long easing cycle of the interest rate seems to have come to an end and the RBI’s next move will be to increase the key rates which might happen as soon as beginning of 2010.</span>
<br /></div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com7tag:blogger.com,1999:blog-2029304619013370644.post-26622762764392816252009-07-17T02:19:00.000-07:002009-07-20T04:41:15.811-07:00Slowdown in credit off-take in India<div style="text-align: justify;"><span style="color: rgb(0, 0, 0);">Credit off-take has been rapidly slowing down in India since June’08, mainly because of high interest rates (until Oct’08) and banks unwillingness to lend later on. Though the RBI – the central bank of India - has projected 20% growth in the credit off-take for the fiscal year 2009-10, credit growth has slowed down to merely 16.7% in the first quarter of FY10, down from 25% in the same period last year.</span><br /></div><br /><div style="text-align: justify; color: rgb(0, 0, 0);"><div style="text-align: justify;">But there is some positive news which has come up today regarding the credit off-take in India. The total credit off-take increased 16.3% (y/y) as of 3rd July’09, higher than the 15.1% in the previous fortnight. However, it’s still far below the peak of nearly 30% in Oct’08. But a high base effect is also playing its role in distorting these numbers. Not a problem. Let’s take a look at the monthly growth rates, which could give more insights in the current situation.<br /> <span style="color: rgb(0, 153, 0);"><span style="font-weight: bold;">Banks' credit growth rate in India</span></span><br /></div><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnUsuOq6uNZ9Of0tM0AbCZRZWfSTRGjecxB3p-MM7PeJ0ita7AOe4PAts7WciouhfnIpG0AtWGX5GgNwiyBXbk2-X5lw_KQSxq-_XLUmqAIX-s8pA91sdKkBwqqBQJec4Z9DjagyJmfRRp/s1600-h/credit+gr.png"><img style="cursor: pointer; width: 400px; height: 293px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnUsuOq6uNZ9Of0tM0AbCZRZWfSTRGjecxB3p-MM7PeJ0ita7AOe4PAts7WciouhfnIpG0AtWGX5GgNwiyBXbk2-X5lw_KQSxq-_XLUmqAIX-s8pA91sdKkBwqqBQJec4Z9DjagyJmfRRp/s400/credit+gr.png" alt="" id="BLOGGER_PHOTO_ID_5359358013343240322" border="0" /></a><br /><span style="font-size:78%;">Source: Nomura, CEIC</span><br /><div style="text-align: justify;">Well, looking at the monthly growth rates, credit growth seems to be gradually gaining traction; credit growth rose to 1.2% (m/m, s.a.) in June’09, as compared to 0.3% in the beginning of 2009.<br />Banks have become very reluctant to lend money post Lehman Brothers collapse. They rather prefer putting money with the RBI. There has been excess liquidity in the system for last seven months now, which can be seen by repo liquidity data (see the graph below).<br /></div><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWWe4_OmzTtc-JNTEJ4QHExQRmX9AlVTuVgWTrNf3IG67IYfRNZ_haLhna9uvZKIvXw0ELg-A2IDx-YHL2hl1iRo4jueC9cQgxOpIAVEhBK7aTbRXgPIi4Uxdc79xMuCKADjBBfFS4UDP8/s1600-h/repo+liquidity.png"><img style="cursor: pointer; width: 391px; height: 237px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWWe4_OmzTtc-JNTEJ4QHExQRmX9AlVTuVgWTrNf3IG67IYfRNZ_haLhna9uvZKIvXw0ELg-A2IDx-YHL2hl1iRo4jueC9cQgxOpIAVEhBK7aTbRXgPIi4Uxdc79xMuCKADjBBfFS4UDP8/s400/repo+liquidity.png" alt="" id="BLOGGER_PHOTO_ID_5359357660677207538" border="0" /></a><br /><div style="text-align: justify;">To stop that, the RBI has reduced the reverse repo rate – the interest money banks get for parking their funds with RBI – to 3.25% in April’09, from 6% last year. But the result is yet to be seen. The RBI should take some steps to ensure easy access to funds if it wants to see the country growing at a higher pace. The central bank is going to decide on its interest rate on July 28. Till then, take a chill pill and start snoring.<br /></div></div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-68773815509778108992009-07-09T03:13:00.000-07:002009-07-09T04:02:51.244-07:00India Budget 2009-10 spoils the party<div style="text-align: justify;"><span style="color: rgb(0, 0, 0);">I am not enjoying writing this post. Why? Actually, I along with millions of Indian citizens was expecting so much from this budget . Alas ! it fails to deliver completely. That's why I didn't feel like writing about it. But we can't ignore it either. First have a look at the highlights and my comments. </span><meta name="Originator" content="Microsoft Word 11"><link style="color: rgb(0, 0, 0);" rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]-->
<br /><meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <p class="MsoNormal"><b style=""><span style="font-size: 22pt; color: rgb(255, 102, 0);">H</span></b><b style=""><span style="font-size: 14pt; color: rgb(255, 102, 0);">ighlights of the budget</span></b><span style="font-size: 14pt; color: rgb(255, 102, 0);"><o:p></o:p></span></p> <meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"></o:smarttagtype><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><!--[if !mso]><object classid="clsid:38481807-CA0E-42D2-BF39-B33AF135CC4D" id="ieooui"></object> <style> st1\:*{behavior:url(#ieooui) } </style> <![endif]--><style> <!-- /* Font Definitions */ @font-face {font-family:Wingdings; 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mso-level-text:; mso-level-tab-stop:.25in; mso-level-number-position:left; margin-left:.25in; text-indent:-.25in; font-family:Wingdings;} ol {margin-bottom:0in;} ul {margin-bottom:0in;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <h3 style="margin: 4pt 0in; text-align: justify; color: rgb(0, 0, 0);"><span style="font-size: 11pt; font-weight: normal;">(Fiscal year: April 1 – March 31)<o:p></o:p></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Real GDP growth assumed at 6.5% in fiscal year 2009-10 – <i style=""><span style="color: rgb(51, 0, 153);">Quite realistic </span><o:p></o:p></i></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Fiscal deficit projected at 6.8 % of GDP – <i style="color: rgb(51, 0, 153);">No roadmap for fiscal consolidation</i> <o:p></o:p></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Total expenditure increased by 36 % to Rs 10,208.38 bn over 2008-09 – <i style=""><span style="color: rgb(51, 0, 153);">Govt will have to borrow from markets, leading to upward pressure on interest rates</span><o:p></o:p></i></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Allocation for the National Highway Development Programme (NHDP) increased 23% in 2009-10. Also, allocation for Bharat Nirman increased 45% in 2009-10 - <i style="color: rgb(51, 0, 153);">Infrastructure gets a focus</i><o:p></o:p></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Allocation under National Rural Employment Guarantee Scheme (NREGS) increased by 144 % to Rs 391 bn in 2009-10 – <i style=""><span style="color: rgb(51, 0, 153);">NREGS has been quite successful in the past and will provide further support to the poor</span><o:p></o:p></i></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Unique Identification Authority of India (UIDAI) to set up online data base for Indian residents and provision of Rs 1.2 bn made for this in the budget <i style="">– <span style="color: rgb(51, 0, 153);">a welcome step</span></i><o:p></o:p></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">No change in corporate tax rate –<span style="color: rgb(51, 0, 153);"> </span><i style="color: rgb(51, 0, 153);">No relief to corporate <st1:country-region st="on"><st1:place st="on">India</st1:place></st1:country-region></i><o:p></o:p></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Fringe benefit tax (FBT) to be abolished – <i style="color: rgb(51, 0, 153);">Will provide immense</i><span style="color: rgb(51, 0, 153);"> </span><i style="color: rgb(51, 0, 153);">relief to millions of people</i> <o:p></o:p></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Commodity transaction tax (CTT) to be removed <o:p></o:p></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Minimum alternate tax (MAT) to be increased from 10% to 15% of book profits<o:p></o:p></span></h3> <h3 style="margin: 4pt 0in 4pt 0.25in; text-align: justify; text-indent: -0.25in; color: rgb(0, 0, 0);"><!--[if !supportLists]--><span style="font-size: 12pt; font-family: Wingdings; font-weight: normal;"><span style="">§<span style="font-family: "Times New Roman"; font-style: normal; font-variant: normal; font-weight: normal; font-size: 7pt; line-height: normal; font-size-adjust: none; font-stretch: normal;"> </span></span></span><!--[endif]--><span style="font-size: 12pt; font-weight: normal;">Raised the exemption limit of personal income tax by Rs 10,000 for all categories of individual taxpayers; by Rs 15,000 for senior citizens. Also, surcharge of 10% eliminated on personal income tax – <i style="color: rgb(51, 0, 153);">people will have more money to spend</i><o:p></o:p></span></h3> <meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link style="color: rgb(0, 0, 0);" rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--><span style="color: rgb(0, 0, 0);font-size:14;" ><o:p></o:p></span><p style="color: rgb(0, 0, 0);"></p> <span style="font-weight: normal; color: rgb(0, 0, 0);font-size:12;" ><o:p></o:p></span></div><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <div style="text-align: justify;"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in .75in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--><span style="color: rgb(0, 0, 0);">Finance minister Mr. Pranab Mukherjee disappointed the country by presenting a very ordinary (or call it hopeless) budget on July 6. The whole country was waiting for this event desperately; more so because the Congress had received a renewed mandate following the general election in May09. The newly elected government was expected to bring some revolutionary reforms to set the country on a higher growth trajectory. Nothing of this sort happened. On the contrary, there was no clear road-map on how the government is going to tackle the high fiscal deficit, which has been projected at 6.8% of GDP in FY10. Here are the key numbers from the budget.</span>
<br />
<br /><meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><link rel="Edit-Time-Data" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_editdata.mso"><!--[if !mso]> <style> v\:* {behavior:url(#default#VML);} o\:* {behavior:url(#default#VML);} w\:* {behavior:url(#default#VML);} .shape {behavior:url(#default#VML);} </style> <![endif]--><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; 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charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; 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margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in .75in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> </p><p class="MsoNormal" style="text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_SrsmLlxm-WYlFSl-T8PJShgUXB1ZO7hwbi917cQLvjVncMJT3iV60cJvJnaUo8p41Byef0q7PhF1DLuo0tV9IsxMXf_okNoeYbWdtk965BO2ICbLJzh9R-hDRiBGwiNZbVhkHrB-LN_F/s1600-h/budget+1.png"><img style="cursor: pointer; width: 400px; height: 358px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_SrsmLlxm-WYlFSl-T8PJShgUXB1ZO7hwbi917cQLvjVncMJT3iV60cJvJnaUo8p41Byef0q7PhF1DLuo0tV9IsxMXf_okNoeYbWdtk965BO2ICbLJzh9R-hDRiBGwiNZbVhkHrB-LN_F/s400/budget+1.png" alt="" id="BLOGGER_PHOTO_ID_5356405827808977682" border="0" /></a></p> <p style="color: rgb(0, 0, 0);">But don’t get too disheartened. Budget is not the only platform to declare all the reformatory actions. The government might declare some more actions whenever it gets ready for them. Think positive!!</p> </div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-74234950256960525642009-07-01T02:26:00.000-07:002009-07-01T02:32:25.434-07:00A silver lining in the cloud!<div style="text-align: justify;">Indian exports continue to be on a falling spree. Exports declined 29.2% (y/y) in May’09 to $11 bn, after dropping 33.2% in Apr’09 due to weak global demand. This was the eighth straight month when exports have fallen sharply.<br /></div><br /><div style="text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2CAakiNk5LYbY9BbVsxIhQq1ewUhlpn9rEd2MJz-6GZ_QVVl6MfrhyphenhyphenwD0vKnNsScPr8q7S8cbi7WTGRM5TFmPGgLS8QXG7iXbHXZ92_Tue0P2j6aeFAYCKzPrQX1Y2G2PUNo2XVf-6AUi/s1600-h/Exports+1.png"><img style="cursor: pointer; width: 404px; height: 243px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2CAakiNk5LYbY9BbVsxIhQq1ewUhlpn9rEd2MJz-6GZ_QVVl6MfrhyphenhyphenwD0vKnNsScPr8q7S8cbi7WTGRM5TFmPGgLS8QXG7iXbHXZ92_Tue0P2j6aeFAYCKzPrQX1Y2G2PUNo2XVf-6AUi/s400/Exports+1.png" alt="" id="BLOGGER_PHOTO_ID_5353421336420239090" border="0" /></a><br />The Rupee is likely to appreciate in the coming months (see my previous post on rupee), which in turn will make exports less competitive in the international markets. Therefore, the road from here is not going to be smooth for the exporters. However, the government may unveil relief measures in the coming budget on July 6 to help exporters survive. There are expectations that the government may announce a foreign trade policy in Aug’09 to provide further support to the exporters.<br /><br />Well, this is not all too bad. There is a silver lining here. Indian imports are also falling continuously for past six months at the same time. Imports fell 39.2% (y/y) in May’09 to $16.2 bn, following 36.6% drop in Apr’09. As a result, India’s trade deficit has halved to $5.2 bn in May’09, as compared to $11.2 bn a year ago. A shrinking trade deficit comes as good news for the economy. Don't you think so?<br /></div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-77003212688307938302009-06-30T01:27:00.000-07:002009-07-03T23:14:03.273-07:00Outlook for INR/USD<div style="text-align: justify;">The <span style="font-weight: bold;">Indian Rupee </span>(INR) has been extremely volatile in last two years. The currency has touched its peak and trough vis-à-vis the US dollar (USD) in these two years (see the graph below). During the same time, the INR defeated the forecasts made by most of the top notch global & Indian banks. I still remember when rupee was trading around 40 per dollar in Jan’08, few big agencies were betting on the INR going below 30 per dollar by end-2008. This was one extreme though. But most of the agencies were of the view that the INR will keep appreciating though out the year (2008). It didn’t happen. On the contrary, the INR depreciated around 20% to 50 per dollar in the same year. The other extreme was when these agencies were forecasting the INR to touch 57 per dollar merely four months back. So I assume you understood the plight of the forecasters.
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<br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkFXeWj-ihDayAD3QqlyqMSZ3tkuKRXTqlLiVDG-Pn69k_eFOvgVXForEXN8HunfYxBt9nxmBeqOlVsYKB1gzo02wFQ1B6SZcyvlTB8H4u7QTPfJDE0qEEFdihbrlOcA7-XnE0fB4CBTZd/s1600-h/Picture+INR.jpg"><img style="cursor: pointer; width: 400px; height: 253px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhkFXeWj-ihDayAD3QqlyqMSZ3tkuKRXTqlLiVDG-Pn69k_eFOvgVXForEXN8HunfYxBt9nxmBeqOlVsYKB1gzo02wFQ1B6SZcyvlTB8H4u7QTPfJDE0qEEFdihbrlOcA7-XnE0fB4CBTZd/s400/Picture+INR.jpg" alt="" id="BLOGGER_PHOTO_ID_5353034759376441938" border="0" /></a>
<br /><span style="color: rgb(255, 153, 0); font-weight: bold;">What went wrong?</span>
<br /><div style="text-align: justify;">The rupee depends very heavily on Foreign Institutional Investor (FII) flows. If FIIs start sending money to Indian financial markets, the currency appreciates and if FIIs pull out money from India, rupee starts taking a hit.
<br /></div> <meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <p style="text-align: left;" class="MsoNormal"> <span style="font-weight: bold;"> </span><span style="color: rgb(255, 153, 0); font-weight: bold;"> Rupee dependence on FII flows</span></p> <a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjjsADfuz7PqTeAIu41Er1XjCh39BgIIRj0bEEFXDjJ9cn1PDilvkxUgeKlQjJID2PhlOi1bgx8ocxAmyVQD3Mnyz5lkPnxaoIdK53Etn8rBKTHQ_3gkh4tv7xJ91myEzqs0ospJrk9Aov/s1600-h/Picture+INR+FII.png"><img style="cursor: pointer; width: 398px; height: 239px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjjsADfuz7PqTeAIu41Er1XjCh39BgIIRj0bEEFXDjJ9cn1PDilvkxUgeKlQjJID2PhlOi1bgx8ocxAmyVQD3Mnyz5lkPnxaoIdK53Etn8rBKTHQ_3gkh4tv7xJ91myEzqs0ospJrk9Aov/s400/Picture+INR+FII.png" alt="" id="BLOGGER_PHOTO_ID_5353039221750623922" border="0" /></a>
<br /><div style="text-align: justify;">Forecasters were very bullish on India’s growth story in the beginning of 2008 and were anticipating heavy FII inflows. But FIIs actually pulled out $9.3 billion from Indian markets in 2008. Due to these heavy capital outflows the INR tumbled to around 50-levels against the USD in Dec' 08.
<br /></div><span style="font-weight: bold; color: rgb(255, 153, 0);">
<br />The way forward</span>
<br /><div style="text-align: justify;">The rupee appreciated very sharply around 47-levels against the dollar following the general election results on May 16. A surge in FII inflows fuelled the INR rally against the greenback. However, the rupee has lost over 2% in last fortnight and is trading at around 48-levels against the dollar.
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<br /><div style="text-align: justify;"><span style="font-weight: bold;">Economic outlook</span> for India has improved to some extent in last one month. The industrial production data, core sector data, manufacturing PMI, and GDP data are the ones which paint a positive outlook for India. The IIP expanded 1.4% (y/y) in Apr09, after remaining in the negative territory for two months. The core sector posted a growth of 4.3% (y/y) in the same month. Manufacturing PMI expanded for a second straight month in May09 to its highest in last eight months. Moreover, as I have mentioned in my previous post, the World Bank has upwardly revised its India’s GDP forecast for 2009 & 2010 on June 22. The next major event is the fiscal bill, which will be presented on July 6.
<br />
<br />A better growth prospect will lead to higher capital inflows in the coming months. This builds up a case for a stronger rupee in the medium-term. Therefore, <span style="font-weight: bold;">the rupee is expected to be around 46-levels against the dollar by Mar 2010</span>. However, in the immediate term, the rupee could trade in a volatile range, tracking the developments in the equity markets and also the performance of the dollar vis-à-vis other currencies.
<br /></div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-60263805216250736302009-06-25T05:35:00.000-07:002009-06-25T05:55:02.586-07:00World Bank: India to grow faster than China in 2010<meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"></o:smarttagtype><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><!--[if !mso]><object classid="clsid:38481807-CA0E-42D2-BF39-B33AF135CC4D" id="ieooui"></object> <style> st1\:*{behavior:url(#ieooui) } </style> <![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify;"><span style="color: rgb(51, 51, 255);"><span style="color: rgb(0, 0, 0);">I was glad to see</span> </span>the World Bank’s latest revisions in its global GDP forecasts on June 22, 2009. Now you must be thinking that I have lost it completely because in that update the World Bank actually revised the global GDP forecasts downward for both 2009 & 10. So why would someone be happy about it? Well, I understand your point. But if you have read my older post on ‘Who will be the next global economic growth leader?’ posted on June 17, 2009, I had written that <st1:country-region st="on">India</st1:country-region> will leave <st1:country-region st="on"><st1:place st="on">China</st1:place></st1:country-region> behind in terms of economic growth to become the global growth leader.
<br /></p><p class="MsoNormal" style="text-align: justify;">
<br /></p> <p class="MsoNormal" style="text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="text-align: justify;">Five days later the World Bank comes to support my statement by projecting <st1:country-region st="on">India</st1:country-region> to grow faster than <st1:country-region st="on"><st1:place st="on">China</st1:place></st1:country-region> in 2010. According to World Bank <st1:country-region st="on"><st1:place st="on">India</st1:place></st1:country-region> would grow at 8% in 2010, making it the fastest-growing economy in the world. <st1:place st="on"><st1:country-region st="on">China</st1:country-region></st1:place> is projected to grow at 7.7% in the same year. Have a look at the following table.
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<br /></p><p class="MsoNormal" style="text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGR7ag7iGvU0Aepsp6eOHsrENBpeOimsL9S_xqpFLfpNJj9RQ6S55sFyP-DOKAI_QyJN4qT5ipeeuF8_LhYx44LBdQo4Vehwhuiaid9kOEnnlqLK3f8RkCApoggwmUIGpvLoBX_stzKDkg/s1600-h/World+Bank+gdp.jpg"><img style="cursor: pointer; width: 400px; height: 305px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGR7ag7iGvU0Aepsp6eOHsrENBpeOimsL9S_xqpFLfpNJj9RQ6S55sFyP-DOKAI_QyJN4qT5ipeeuF8_LhYx44LBdQo4Vehwhuiaid9kOEnnlqLK3f8RkCApoggwmUIGpvLoBX_stzKDkg/s400/World+Bank+gdp.jpg" alt="" id="BLOGGER_PHOTO_ID_5351245128716645778" border="0" /></a></p> <p class="MsoNormal" style="text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="text-align: justify;">
<br /></p><p class="MsoNormal" style="text-align: justify;">Let’s talk about the world economy now. Despite the recent signs of improvement in some parts of the world, the prospects for the global economy remain quite uncertain. According to the World Bank’s revised forecasts, the world GDP will contract by 2.9% in 2009 as compared to 1.7% it had forecast just two months and a half ago. To my mind, the global economy will take some time - say four more quarters - to come out of the trauma of recession.
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<br /></p> <p class="MsoNormal" style="text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="text-align: justify;">The policy makers will have to be extra careful about all macro indicators and will have to respond to them accordingly.<span style=""> </span>Structural imbalances which have been created over the period need to be tackled now. The <st1:place st="on"><st1:country-region st="on">US</st1:country-region></st1:place> consumers need to learn how to save and the Chinese consumers should learn how to spend. Another major problem for many countries is the mounting fiscal deficit, which is going to take the centre stage once the recovery starts. Inflation, unemployment, protectionism… It will be quite a task for policymakers to tackle these-going-to-be-serious issues. Well, I am also bracing myself for bringing all the actions on the economy front to your notice. </p> Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com0tag:blogger.com,1999:blog-2029304619013370644.post-21159480107262330372009-06-22T06:07:00.000-07:002009-06-22T06:18:28.187-07:00Signs of global economic recovery or just a mirage?<meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify;">At a time when people around the world were riding high on early signs of economic recovery, the World Bank (WB) brings them back to the ground reality. According to the WB, which has revised its forecasts on global economic growth to -2.9% in 2009, down from -1.7% projected in Mar’09, the recovery is expected to be very gradual. Have a look at the WB's revised GDP forecasts for 2009 and 2010.</p> <p class="MsoNormal" style="text-align: justify;"><o:p> </o:p></p><p class="MsoNormal" style="text-align: justify;">
<br /><o:p></o:p></p><p class="MsoNormal" style="text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiq5__Bu8WorQru0emij1DodykjO3e1EKvhfhRBsny_3qc-yh77lIPDGbymclZGeIblYDHlAniGX7oa3Y2eHey1LMAjSjuV4_vvFpG2WL_Xqcl6xC10EBtlSQ9yn1AIbJV1eICetJdUyen3/s1600-h/Picture1WB+GDP.jpg"><img style="cursor: pointer; width: 400px; height: 252px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiq5__Bu8WorQru0emij1DodykjO3e1EKvhfhRBsny_3qc-yh77lIPDGbymclZGeIblYDHlAniGX7oa3Y2eHey1LMAjSjuV4_vvFpG2WL_Xqcl6xC10EBtlSQ9yn1AIbJV1eICetJdUyen3/s400/Picture1WB+GDP.jpg" alt="" id="BLOGGER_PHOTO_ID_5350139259264956242" border="0" /></a>
<br /><o:p></o:p></p><p class="MsoNormal" style="text-align: justify;">
<br /><o:p></o:p></p><p class="MsoNormal" style="text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_RQjgieWKD1HtcGq8MksO2O1VbplHboQ6QhtYzpvp7tbcUcm5oxTyVBHR8rm7M_xuUWDi55SAaFT_7lFeVfeqrVeg5qHEQ1GCySbuUMiXGUc3g4pBLi51it_jPcaYDDRlMZeuJUXbaV4X/s1600-h/Picture2+GDP+WB.jpg"><img style="cursor: pointer; width: 400px; height: 237px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_RQjgieWKD1HtcGq8MksO2O1VbplHboQ6QhtYzpvp7tbcUcm5oxTyVBHR8rm7M_xuUWDi55SAaFT_7lFeVfeqrVeg5qHEQ1GCySbuUMiXGUc3g4pBLi51it_jPcaYDDRlMZeuJUXbaV4X/s400/Picture2+GDP+WB.jpg" alt="" id="BLOGGER_PHOTO_ID_5350139801086868546" border="0" /></a>
<br /><o:p></o:p></p> <p class="MsoNormal" style="text-align: justify;">One interesting thing you must have noticed about Indian and Chinese economies. Growth forecasts for both the nations have been revised upward. Now, does it say that the decoupling hypothesis was not a complete absurd and it’s just a beginning? May be a couple of decades later this blissful thought becomes a reality. </p> <p class="MsoNormal" style="text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="text-align: justify;">
<br /></p><p class="MsoNormal" style="text-align: justify;">Well, for me it’s too early to comment on that. Personally, I don’t believe in ‘decoupling’. If you have views on that please share. </p> Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com2tag:blogger.com,1999:blog-2029304619013370644.post-42328567176134653542009-06-19T02:48:00.000-07:002009-06-19T03:10:33.607-07:00Deflation in India ...Really?<meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"></o:smarttagtype><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><!--[if !mso]><object classid="clsid:38481807-CA0E-42D2-BF39-B33AF135CC4D" id="ieooui"></object> <style> st1\:*{behavior:url(#ieooui) } </style> <![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><st1:country-region st="on"><st1:place st="on">India</st1:place></st1:country-region>'s inflation rate slipped into negative terrain for the first time in last 35 years. Annual inflation rate declined to -1.6% for the week ended June 6, 2009 as compared to 11.7% during the corresponding week last year.</p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">
<br /></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZnuJtSqScKEAAgmUunn2J-jNhO-36kxZChXR0OxnJF8j_g4qnDn2uq2xD0NzAgyn4iIs5u8XTMsM7J_W1ieXnhUX7VUfd7Amv0DtBTqGiVgT8jap5pwSePjK1lBBOT1ILj8XKfPf0heuq/s1600-h/Picture1infl.jpg"><img style="cursor: pointer; width: 394px; height: 196px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiZnuJtSqScKEAAgmUunn2J-jNhO-36kxZChXR0OxnJF8j_g4qnDn2uq2xD0NzAgyn4iIs5u8XTMsM7J_W1ieXnhUX7VUfd7Amv0DtBTqGiVgT8jap5pwSePjK1lBBOT1ILj8XKfPf0heuq/s400/Picture1infl.jpg" alt="" id="BLOGGER_PHOTO_ID_5348974379141517186" border="0" /></a></p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">
<br /></p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">Now, what does this mean? Should we call it deflation or disinflation or something else? To my mind these numbers have only statistical significance. I don’t think <st1:country-region st="on"><st1:place st="on">India</st1:place></st1:country-region> is facing deflationary pressure at all. In fact, prices for certain commodities have gone up very sharply off late. Mainly, it’s the <b style="">high base effect</b> which has forced inflation into the negative zone.
<br /></p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">
<br /></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">Another important thing to notice is that Inflation in <st1:country-region st="on"><st1:place st="on">India</st1:place></st1:country-region> is based on wholesale price index (WPI) unlike most countries which follow consumer price index based inflation. <span style=""> </span>The wholesale price index (WPI) takes into account the wholesale prices of commodities whereas the consumer price index (CPI) considers prices of goods and services<i style=""> </i>at the retail level.</p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">
<br /></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">So if we go by CPI-based inflation rate like most other countries do, inflation in <st1:place st="on"><st1:country-region st="on">India</st1:country-region></st1:place> is still ruling firm at near double-digits in light of high food prices. Annual inflation measured in terms of consumer price index (CPI) stood at 8.7% in April’09.
<br /></p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">
<br /></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">Secondly, if we calculate WBI-based inflation on a monthly basis, it becomes crystal clear that inflation has been picking up for last three months. Going forward, I expect <span style="font-weight: bold;">i</span><b style="">nflation to pick up sharply around Sep-Oct’09 once the base effect dies its own death.</b></p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><b style="">
<br /></b></p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjk7OiM-DliF6W0FN1XSL9CHR7rr_TkAu55vpWJblutUpmwvDCNgKFMlFkDQI1oozS3n5w2JtmozTOUT9ZiuxMsH5ZAZTeUJoLmBqspb0CjOhPV3WpK6IFT-LZYxgv0pSbmfzpGUIDaZrRE/s1600-h/Picture2+Infl.jpg"><img style="cursor: pointer; width: 400px; height: 202px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjk7OiM-DliF6W0FN1XSL9CHR7rr_TkAu55vpWJblutUpmwvDCNgKFMlFkDQI1oozS3n5w2JtmozTOUT9ZiuxMsH5ZAZTeUJoLmBqspb0CjOhPV3WpK6IFT-LZYxgv0pSbmfzpGUIDaZrRE/s400/Picture2+Infl.jpg" alt="" id="BLOGGER_PHOTO_ID_5348978160085651394" border="0" /></a><span style=""> </span></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">
<br /></p><p class="MsoNormal" style="margin-top: 2pt; text-align: justify;">I don’t think RBI need to cut its key interest rate going forward as it has already brought it down by 425 basis points since October’08. Let me know whether you agree with me or not and if not why so?</p> Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com6tag:blogger.com,1999:blog-2029304619013370644.post-47282323590236658462009-06-17T05:59:00.000-07:002009-06-18T06:23:54.317-07:00Who will be the next global economic growth leader?<meta equiv="Content-Type" content="text/html; charset=utf-8"><meta name="ProgId" content="Word.Document"><meta name="Generator" content="Microsoft Word 11"><meta name="Originator" content="Microsoft Word 11"><link rel="File-List" href="file:///C:%5CDOCUME%7E1%5CGAUTAM%7E1.SIN%5CLOCALS%7E1%5CTemp%5Cmsohtml1%5C01%5Cclip_filelist.xml"><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="country-region"></o:smarttagtype><o:smarttagtype namespaceuri="urn:schemas-microsoft-com:office:smarttags" name="place"></o:smarttagtype><!--[if gte mso 9]><xml> <w:worddocument> <w:view>Normal</w:View> <w:zoom>0</w:Zoom> <w:punctuationkerning/> <w:validateagainstschemas/> <w:saveifxmlinvalid>false</w:SaveIfXMLInvalid> <w:ignoremixedcontent>false</w:IgnoreMixedContent> <w:alwaysshowplaceholdertext>false</w:AlwaysShowPlaceholderText> <w:compatibility> <w:breakwrappedtables/> <w:snaptogridincell/> <w:wraptextwithpunct/> <w:useasianbreakrules/> <w:dontgrowautofit/> </w:Compatibility> <w:browserlevel>MicrosoftInternetExplorer4</w:BrowserLevel> </w:WordDocument> </xml><![endif]--><!--[if gte mso 9]><xml> <w:latentstyles deflockedstate="false" latentstylecount="156"> </w:LatentStyles> </xml><![endif]--><!--[if !mso]><object classid="clsid:38481807-CA0E-42D2-BF39-B33AF135CC4D" id="ieooui"></object> <style> st1\:*{behavior:url(#ieooui) } </style> <![endif]--><style> <!-- /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:""; margin:0in; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:12.0pt; font-family:"Times New Roman"; mso-fareast-font-family:"Times New Roman";} @page Section1 {size:8.5in 11.0in; margin:1.0in 1.25in 1.0in 1.25in; mso-header-margin:.5in; mso-footer-margin:.5in; mso-paper-source:0;} div.Section1 {page:Section1;} --> </style><!--[if gte mso 10]> <style> /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman"; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} </style> <![endif]--> <p class="MsoNormal" style="text-align: justify;">“I remember myself being the topper of the class for years in my school days? All thanks to my superb tuition teacher. But one day the teacher got married and left the city. And the guy who used to come number two or three stood first in the class that year. Actually, the guy used to study on his own and was not depending on any tuition unlike me.”
<br /></p><p class="MsoNormal" style="text-align: justify;">
<br /></p> <p class="MsoNormal" style="text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="text-align: justify;">I see the same thing happening to <st1:place st="on"><st1:country-region st="on">China</st1:country-region></st1:place> <i style="">(me)</i> in coming years. <st1:country-region st="on"><st1:place st="on">China</st1:place></st1:country-region> has enjoyed the status of ‘the fastest growing economy in the world’ for quite some time now. But there is a big question mark on whether it will continue to rule the number one position any longer. Why is that so?
<br /></p><p class="MsoNormal" style="text-align: justify;">
<br /></p> <p class="MsoNormal" style="text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="text-align: justify;">Actually, the global demand has dried up completely on account of global recession. <st1:country-region st="on"><st1:place st="on">China</st1:place></st1:country-region>'s exports <i style="">(tuition teacher) </i>have fallen around 22% in the first five months of 2009, as compared to the same period a year ago. May was the seventh straight month when exports tanked. Given the current economic situation, exports are unlikely to recover any time soon.</p><p class="MsoNormal" style="text-align: justify;">
<br /></p><p class="MsoNormal" style="text-align: justify;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj27MFdHO3fQN1FjmbFq9slwsu4DanDqgVAR2xAgvo-IRuAk5golInzgvIaA-DcRQ4d4DQsIBpVf-f92tVfi6XkNvQZAcNEjXH-Xf620lVKSBtqZc-exG3QybGDrJpay715TW7tfcePhZeL/s1600-h/Picture2+China.jpg"><img style="cursor: pointer; width: 400px; height: 224px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj27MFdHO3fQN1FjmbFq9slwsu4DanDqgVAR2xAgvo-IRuAk5golInzgvIaA-DcRQ4d4DQsIBpVf-f92tVfi6XkNvQZAcNEjXH-Xf620lVKSBtqZc-exG3QybGDrJpay715TW7tfcePhZeL/s400/Picture2+China.jpg" alt="" id="BLOGGER_PHOTO_ID_5348283751829396690" border="0" /></a></p><p class="MsoNormal" style="text-align: justify;">
<br /></p><p class="MsoNormal" style="text-align: justify;">But that creates a problem for China. Exports contribute more that 35% to <st1:country-region st="on">China</st1:country-region>’s GDP as compared to 14% in case of <st1:place st="on"><st1:country-region st="on">India</st1:country-region></st1:place>. Therefore, this kind of heavy dependence on exports will be the reason for <st1:country-region st="on"><st1:place st="on">China</st1:place></st1:country-region>’s sluggish growth in coming time.</p><p class="MsoNormal" style="text-align: justify;">
<br /></p> <p class="MsoNormal" style="text-align: justify;"><o:p> </o:p></p> <p class="MsoNormal" style="text-align: justify;"><o:p></o:p></p> <p class="MsoNormal" style="text-align: justify;">Rest I leave to you to guess who will be the next topper in the world. Yes…You guessed it right. </p> Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com3tag:blogger.com,1999:blog-2029304619013370644.post-61324179975931641802009-06-13T05:49:00.000-07:002009-07-01T02:41:03.138-07:00Green shoots of recovery in Indian economy<p style="text-align: justify;"><span style="color: rgb(0, 176, 80);">Furthering to my previous post on Indian economy, following are the indicators which indicate that the Indian economy has already bottomed out. Let’s have a look.</span><br /></p><div style="text-align: justify;"><b>Manufacturing PMI back in expansionary zone </b>: India’s Purchasing Managers’ Index (PMI) – which indicates the economic health of manufacturing sector - rose for the fifth straight month in May’09 to an eight-month high of <b>55.7</b> as compared to 53.3 in Apr’09. <em>A reading above 50 indicates expansion, while a reading below 50 indicates a contraction.</em></div><p style="text-align: justify;"> </p><p style="text-align: justify;" align="left"><img style="width: 335px; height: 158px;" id="BLOGGER_PHOTO_ID_5347150126552877442" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhA5n4thJpNowxO6oFGCnsz1L5RpTFy80WcaDwPLqMqiSBWfiXlrK_HPra3ZM3dty9a0HPHBcQoTEhowVndiDDO37bbRsBh15R17z9V0sRZ28Y4cFzh3GyNHG10Hf1jAk4IoXVj625VcON_/s320/Picture3.png" border="0" /><br /><br />There are two interesting things to be noted here. One, India's PMI came out be actually higher than that of China’s 53.1 in May09. And the second one is that domestic demand has been the key driving factor behind it. Exports have been on the falling spree since last eight months as the global demand has dried up completely. So hats off to India’s domestic demand which has helped Indian economy weather through these trying times.</p><p style="text-align: justify;" align="left"><b>OECD leading indicators:</b> The OECD Composite Leading Indicators (CLIs) for India increased by 0.4 point to 93.9 in Apr09, against 93.5 in the previous month. Buy the way this was the first time in last two years when the OECD leading indicators posted an increase for India, indicating that Indian economy has hit the bottom of the economic cycle. </p><p style="text-align: center; text-indent: -0.25in; margin-left: 0.5in;"><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzEx-2JP6OJjPhPA2hWEZzuGek27TdSHVY1ju3O4nG7mpACYZMMwe_1A0DVz7zLsba4RMte7MEfrPqRT5Tj780br_Nuh_pas5be02NWJ7upWS7o5bFTq1qJY8bWU-k8qfb2f19hMn76Ybl/s1600-h/Picture2.png"><img style="width: 322px; height: 158px; cursor: pointer;" id="BLOGGER_PHOTO_ID_5346818672965715650" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgzEx-2JP6OJjPhPA2hWEZzuGek27TdSHVY1ju3O4nG7mpACYZMMwe_1A0DVz7zLsba4RMte7MEfrPqRT5Tj780br_Nuh_pas5be02NWJ7upWS7o5bFTq1qJY8bWU-k8qfb2f19hMn76Ybl/s320/Picture2.png" border="0" /></a></p><p style="text-indent: -0.25in; margin-left: 0.5in; text-align: justify;"><b>Industrial production turns positive: </b>This has been the latest flavour of the month. Beating all market expectation, India’s industrial production slipped into positive territory in Apr’09.<b> </b>India’s IIP grew 1.4% (y/y) in Apr’09.<span style="font-size:0;"> </span>Industrial production growth for Mar09 has also been revised upwardly to - 0.8% from -2.3% estimated earlier. Core sector also grew 4.3% in the same month. The problem regarding the industrial production being red for quite some time now seems to be subsiding.</p><p style="text-align: justify;">All these indicators suggest a possible recovery going forward. However, the government still has to do a lot many things to put the Indian economy back on the high growth trajectory. Let’s wait for the budget, which will be presented in the first week of July’09. The government has to address many issues regarding the growth. Infrastructure should get a proper attention too. At the same time the government will have to maintain a fiscal balance as well. Let’s hope the government will be able to manage it well.</p><p style="text-align: justify;" class="MsoNormal"> </p>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com4tag:blogger.com,1999:blog-2029304619013370644.post-27572256690150579292009-06-02T22:59:00.000-07:002009-06-02T23:54:22.091-07:00Indian Economy: Where does it go from here?<div align="justify"><a name="OLE_LINK1"><span style="font-family:georgia;">At a time when most countries around the world are witnessing the worst</span></a><a name="OLE_LINK1"><span style="font-family:georgia;"> slump in more than six</span></a><a name="OLE_LINK1"><span style="font-family:georgia;">-decades, </span></a><a name="OLE_LINK1"><span style="font-family:georgia;">India is still gr</span></a><a name="OLE_LINK1"><span style="font-family:georgia;">owing at the fastest pace after China. Though we ar</span></a><a name="OLE_LINK1"><span style="font-family:georgia;">e not able to continue with the 9% plus growth rate as </span></a><a name="OLE_LINK1"><span style="font-family:georgia;">seen in th</span></a><a name="OLE_LINK1"><span style="font-family:georgia;">e </span></a><a name="OLE_LINK1"><span style="font-family:georgia;">last three years, a 6% plus kind of a growth is very </span></a><a name="OLE_LINK1"><span style="font-family:georgia;">impressive considering the difficult times the </span></a><a name="OLE_LINK1"><span style="font-family:georgia;">global economy is going through. Indian economy grew 5.8% annually in the final quarter of fiscal year 2008-09, which is much better than expected. To make it sound better, the third quarter growth has been revised upward to 5.8%, from 5.3% estimated earlier, taking th</span></a><a name="OLE_LINK1"><span style="font-family:georgia;">e overall growth rate to a respectable 6.7% for the whole year.</span></a><span style="font-family:georgia;"> </span></div><p align="center"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxNnjcJcnPlyn1EtfFZd0qoW-4nkQzi1-3QSVkREjirRgKjsQ9vXa73r5h1f1Wg5FMVVDBkIVt6XGY1ijMJWPjNcOLjDdK_jOqNHJq_YPIM7uWGrB-DbOh5rfXnhgS6Wz4Z7brX7y-zox2/s1600-h/India+GDP1.jpg"><span style="font-family:georgia;"><img id="BLOGGER_PHOTO_ID_5342990083683888290" style="WIDTH: 320px; CURSOR: hand; HEIGHT: 163px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxNnjcJcnPlyn1EtfFZd0qoW-4nkQzi1-3QSVkREjirRgKjsQ9vXa73r5h1f1Wg5FMVVDBkIVt6XGY1ijMJWPjNcOLjDdK_jOqNHJq_YPIM7uWGrB-DbOh5rfXnhgS6Wz4Z7brX7y-zox2/s320/India+GDP1.jpg" border="0" /></span></a></p><div align="justify"><span style="font-family:georgia;">Now, this is not the end of it. This gives birth to a very important question. And that question is weather the worst is over for the Indian economy. Let me park this question for a while and put some facts about the global economy first. Well, I may sound a tad harsh to say that the global economy is poised to see an excruciating year ahead. No matter how much we speak about the signs of economic revival globally, the fact is that the job losses haven’t stopped yet. International trade has seen a nose dive in last 8 months, forcing units to halt production, more job losses, further slump in consumer demand, leading to even lesser trade... more job losses... It’s a vicious circle. The global economy needs to come out of that and it doesn’t happen over night. So the global economy is here to face the worst recession since my grandfather was born.<br />Hmmm, after all that gloomy tour of the world economy, let’s come back to India. Well, I feel proud to say that it seems that the worst is over for the Indian economy. And there are umpteen reasons why it seems so. The first reason is that India is not an exports driven economy. Exports contribute merely 13.5% to India's overall GDP whereas Chinese exports contribute more than 35% to its GDP. </span></div><p align="center"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgU4XW5DxSSg0XgD445c6wbBKTQjleeo_3Evm59wB8sPBl1nXVOiJhWfi46iwiXOuIP6Gzk7t4pBIw0hZdoeyUcJjKTqiLSRMs0JPhBAyisiNEwRNvenfZE_7Lnl2Xkx8zy9bJZZLpY8uUF/s1600-h/Picture1.jpg"><span style="font-family:georgia;"><img id="BLOGGER_PHOTO_ID_5342977312270379810" style="WIDTH: 320px; CURSOR: hand; HEIGHT: 198px" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgU4XW5DxSSg0XgD445c6wbBKTQjleeo_3Evm59wB8sPBl1nXVOiJhWfi46iwiXOuIP6Gzk7t4pBIw0hZdoeyUcJjKTqiLSRMs0JPhBAyisiNEwRNvenfZE_7Lnl2Xkx8zy9bJZZLpY8uUF/s320/Picture1.jpg" border="0" /></span></a></p><span style="font-family:georgia;"></span><div align="justify"><span style="font-family:georgia;">At the domestic front, consumer demand has improved significantly in the month of Aril and May. At a time when urban demand slowed down in the wake of financial crisis, buoyant demand from rural India provided the necessary fuel to India inc’ to weather economic slump. Be it auto-mobile or cement industry, sales have gone up in last two months. Passenger car sales rose over 4% (y/y) in April, following 1% rise in March. Cement dispatches have also been robust in last two months. Steel and electricity have not been behind either. The telecom sector has been adding 10 million plus mobile subscribers to its kitty and will soon cross the 400 million mark as the total subscriber base. FMCG sector has seen around 15% growth in last quarter. So it’s the rural India which has kept the Indian flag high in the sky.</span></div><div align="justify"><span style="font-family:georgia;"><br /></span></div><div align="justify"><span style="font-family:georgia;">On top of everything else, the best thing that happened to India is the unexpected outcome of the general election. Beating expectations of a hung parliament, which could have been a bizarre for Indian economy, Indian people have given a decisive mandate to the Congress-led UPA. Our Prime Minister Dr. Manmohan Sing has said that he will fix the economy in 100 days, and I don't doubt his capabilities seeing his proven track record.<br /></span><span style="font-family:georgia;"></span></div><div align="justify"><span style="font-family:georgia;">All these factors suggest that India has managed to jump out of the lurch. The fiscal bill for the current financial year, which is expected in the first week of July, could also though some positive surprises for the Indian economy. Therefore, I can afford to say that the worst is over for Indian economy and we are heading towards a whopping 10% growth rate somewhere around fiscal year 2012. So what are you waiting for? Cheer up!</span></div>Gautamhttp://www.blogger.com/profile/06842140911188063082noreply@blogger.com2