Diwali dampener: IIP, exports shrink, inflation rises

Diwali celebrations are going on, however on the economic front nothing seems working for the Indian government, as industrial production and exports are down while inflation is nearing double digit. Even the much talked about 2G spectrum auctions has received a lukewarm response

New Delhi: Hopes of early economic revival were belied with key data released on the eve of Diwali showing contraction in industrial production, continued decline in exports and rise in retail inflation, reports PTI.
Besides, the much-talked spectrum auction received a lukewarm response from telecom operators, casting doubts whether the government will be able to realise Rs40,000 crore as targeted from sale of radio waves.
After raising hopes of revival in August, the industrial production contracted again, shrinking by 0.4% in September due to dismal show by the manufacturing sector.
The factory output, as measured by Index of Industrial Production (IIP), declined by 0.4% as against an uptick of 2.3% in August.
Exports remained in the negative territory, declining by 1.63% in October pushing the monthly trade deficit to all time high $21 billion.
On the price front, there was no respite to the common man from rising inflation that is driven by high cost of food items such as sugar, pulses, vegetables as well as clothings.
The retail inflation moved closer to the double digit mark at 9.75% in October, even as India Inc pressed for interest rate cut to revive growth.
The economic growth rate slipped to nine-year low of 6.5% in 2011-12. It was 5.5% in the first quarter of the current fiscal prompting the Reserve Bank of India (RBI) to lower the growth projection for 2012-13 to 5.8%.
Terming the decline in industrial output in September as "very disappointing", Planning Commission Deputy Chairman Montek Singh Ahluwalia said the impact of recent reforms initiatives will manifest in the data for the second half of the fiscal.


Kerala Information Commissioner suspended for intervening in land-gift case

A police probe came across evidence to corroborate the charge that Kerala Information Commissioner K Natarajan had urged a police official investigating the land gift case to spare CPI-M leader Achuthanandan

Thiruvananthapuram: Kerala Governor HR Bhardwaj has suspended state Information Commissioner K Natarajan for allegedly intervening in the land-gift case involving CPI(M) stalwart VS Achuthanandan, reports PTI.


Action against Natarajan, a former DIG of police, was taken on the basis of the recommendation made by the state Government following a police probe which came across evidence to corroborate the charge that the Information Commissioner had urged a police official investigating the case to spare Achuthanandan.


According to official sources, the Governor had also written to the Supreme Court to conduct a detailed inquiry into the charge to decide whether Natarajan should be terminated from the post.


Under the law, the Supreme Court was the competent authority in taking termination procedures against information commissioners.


The complaint against Natarajan was given by DySP VG Kunhan, probing the land gift case in which Achuthanandan figures as the first accused.


The inquiry conducted by ADGP (Vigilance), R Sreelekha had found that Natarajan had been putting pressure on Kunhan to spare Achuthanandan in the case. The audio tape of the conversation purportedly made by Natarajan to Kunhan was aired by Malayalam TV channels a few weeks ago.


The case against Achuthanandan pertains to alleged violation of norms while allotting land to TK Soman, an ex-serviceman and his close relative in Kasaragod district when he was Chief Minister heading the previous LDF ministry.


Achuthanandan, the then Principal Secretary to Chief Minister Sheela Thomas, personal assistant Suresh and former Revenue Minister KP Rajendran are among the accused in the case. The matter came to light at the fag-end of the previous LDF rule and a vigilance probe was ordered by the present UDF government.


An FIR has been registered with Achuthanandan as the first accused in a Vigilance court at Kozhikode.


Natarajan was appointed Information Commissioner during Achuthanandan's tenure as Chief Minister.




5 years ago

The alleged land gift made by V.S. Achutanandan could be a mistake. He is a very honest man.

The Natarajan issue may be the handiwork of either the Congress or his detractors of his own party. Mr. Achutanandan does not need the help or intervention of a retd. DIG in this case.

Economy & Nation Exclusive
United Spirits shareholders have little to look forward to immediately

United Spirits earns a very poor return on capital employed and growth is in low single digits. The Sepetmber quarter was terrible, too. Diageo will have to do a lot of work before shareholders can benefit

While India will become one of the largest markets by sales for Diageo after the US, following the deal to buy a majority stake in United Spirits, and will attract more focus from senior management, it is doubtful whether shareholders will gain much in the absence of revenue and earnings momentum. Even as Diageo announced the deal, the September quarter results were highly disappointing.


  • Volumes at 28.4 million cases declined 1% y-o-y (year-on-year); analysts in brokerage firm Nomura were hoping for a growth of 5%.


  • According to the company, prestige and above segments grew 14% y-o-y in volume terms. This means, a sharp decline in regular portfolio.


  • Operating profit/case has increased 7% y-o-y to Rs99.40 whereas Nomura was expecting a 12% y-o-y jump (from a low base) to Rs104.20


  • Operating profit at Rs2.5. billion was 11% below estimates caused by a sharp rise in material costs. Gross margins dipped 550 bps y-o-y.


  • According to the company, spirit costs for the quarter are up Rs2.25 per case. This had an additional impact of Rs170 million.


  • Interest costs rose 37% y-o-y


  • Net profit (pre-exceptional) was at Rs732 million, 13% below Nomura’s expectations.


Of course, most of the cash raised will be used to pay down the debt and that will lead to significant reduction in interest costs. But this is the only positive for shareholders from this deal.


Marketing spend will be stepped up to improving the portfolio mix, said Diageo, in a conference call. It will also look closely at other parts of the business including supply chain, sourcing and outsourced manufacturing with a view to improving efficiency and improving profitability. Revenues of United Spirits have stagnated at around Rs2000 crore a quarter for the past two years while operating profit has fluctuated between Rs300 crore.




5 years ago

Traditionally the liquor business has a lot of cash components - wonder how this will be handled by an MNC.

R Balakrishnan

5 years ago

This will be an interesting one to watch. Diageo enjoys a near 30% PBT margins worldwide. The economics should be better in India, given the lower selling costs. If Diageo is able to bump up profits, it will clearly prove that the promoter returns are very different from the returns shown on the balance sheet.

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