Weak demand and cost-push inflation is likely to result in a stagflation-type scenario in India over the coming period. Political uncertainty is also set to rise in the coming months due to the upcoming state and the general elections, points out Nomura in its Asia Insights research note
India’s economic outlook is negative over the next six months due to weak growth, balance of payment pressures, cost-push inflation and rising fiscal and political risks, feels Nomura Financial Advisory and Securities (India) Private Limited in its Asia Insights research note. The economy is not at an inflexion point yet. Risks remain skewed to the downside over the next six months. The growth outlook is very weak, and hence, even as the current account deficit moderates, growth-sensitive capital flows – equity and debt – are also likely to moderate sharply, leading to pressure on the balance of payments, forecast Nomura analysts.
Weak demand and cost-push inflation will likely result in a stagflation-type scenario in India over the coming period. Risks of a fiscal slippage are rising, and the only way we see of sticking to the budgeted fiscal deficit target (of 4.8% of GDP) is to cut spending, which would hurt growth, warns the Nomura research note.
According to Nomura, political uncertainty is also set to rise in the coming months due to the upcoming state and the general elections. Hence, it does not see the current optimism as sustainable and remains negative on the economic outlook for now. On the policy front, it expects the repo rate to remain on hold at the 20 September 2013 policy meeting and it is forecasting 75bps of cumulative repo rate cuts in FY15.
Other highlights of the research note include:
(a) Industrial production (IP) rose 2.6% y-o-y in July, above expectations, led by a surprise jump in two of the most volatile components of capital goods. Excluding capital goods, IP rose a more muted 0.8% y-o-y in July versus -1.2% in June.
(b) Nomura does not see this rise as sustainable as financial conditions have tightened, which should impinge on domestic demand. It expects overall GDP growth to slow to 4.2% y-o-y in FY14 versus 5.0% in FY13, despite better agriculture growth.
(c ) CPI inflation moderated to a still-elevated 9.5% y-o-y in August from 9.6% in July. Food inflation remained high (at 11.1% y-o-y), while core CPI inflation inched higher (to 8.2%) due to a rise in services price inflation.
(d) Nomura expects CPI inflation to become increasingly important in monetary policy decisions, compared with WPI currently, with a greater focus on core CPI as a measure of demand-side inflation.
(e) Weaker demand and lower food inflation should moderate CPI inflation in the coming months, but the persistence of high CPI inflation due to elevated inflation expectations remains a key concern.
The industrial production scenario is shown in the following chart:
On the common man’s woes, the food inflation trend is shown in the following chart:
Credit growth is likely to come down to 2.6% in 2013-14 compared to 10%-11% level seen over FY07-11
Based on recently released corporate capex data from RBI, trends continue to be weak for the Indian banking system, observes Nomura Financial Advisory and Securities (India) Private Limited. Based on its FY14F capex estimate, credit growth is likely to come down to 2.6% compared to 10%-11% level seen over FY07-11 (see figure below).
Nomura does not expect overall system credit growth to clock higher than 14.5% reported for FY13, although there could be some upside from stronger rural credit demand and some shift from corporate bonds to loans. Even data from SBI's (State Bank of India) project finance SBU (strategic business unit) point to subdued quantum of sanctions and disbursals related to project finance (see table below).
According to Nomura, politically sensitive states like Odisha and Andhra Pradesh account for about 33% of all loans sanctioned in FY13 (compared to 11% in FY12) (see figure below).
Nomura analysts point out that the capex mix indicates increasing risk profile. The proportion of greenfield projects in annual sanction has risen to 84% for FY13 versus an average of 65% over FY07-11, while capex related to diversification/expansion of existing projects has dropped to Rs312 billion for FY13 from a peak of Rs1.4 trillion in FY10. This could lead to increase in project delays and related restructuring. Troubled sectors like power and metals continue to account for a large share of new project sanctions (68% of overall amount for FY13 compared to 59% for FY12). Please see the chart below on greenfield projects versus others on annual capex sanctions:
Finally, Nomura observes that the annual capex estimate for FY14F is down 42% y-y as per RBI data. For FY13, while overall project sanctions totalled Rs1.96 trillion (a marginal 2.5% y-y increase over the amount sanctioned in FY12), the estimated capital expenditure done per year has continued to fall. For FY13, the amount of aggregate capex (based on all previous sanctions) was down 28% y-y and for FY14F this amount is estimated to fall a further 42%, assuming nothing is added to the pipeline over the rest of this fiscal year.
Voters have a fundamental right to know about their candidates and leaving columns blank in the nomination paper amounts to violation of their right, the apex court said
The Supreme Court on Friday ruled that the returning officer can reject nomination papers of a candidate for non-disclosure and suppression of information, including that of assets and their criminal background.
The apex court said voters have a fundamental right to know about their candidates and leaving columns blank in the nomination paper amounts to violation of their right.
A bench headed by Chief Justice P Sathasivam said the power of the returning officer for rejecting nomination papers must be exercised.
The court passed the judgement on a public interest litigation (PIL) filed in 2008 by Resurgence India, a civil rights group, which detected a trend among candidates of leaving blank the columns demanding critical information about them.
Earlier, advocate Prashant Bhushan, appearing for the NGO, had said leaving any column blank would mean non-compliance of an apex court judgement.
The Election Commission (EC) had supported the NGO’s plea that no column should be allowed to be left blank which tantamount to concealing information and not filing complete affidavit.
It had also taken a stand that the returning officer should be empowered to reject the nomination papers of a candidate who provides incomplete information by leaving some columns blank in the affidavit.
The Centre’s counsel, however, said the right to contest elections is a statutory one and a judgement of a three-judge bench of the apex court held that even for concealing the information, the nomination papers cannot be rejected.
The bench was earlier told that while filing nomination papers, candidates are supposed to furnish affidavits in which there are columns in which they give their educational qualifications, financial assets and liabilities and possible criminal antecedents.
However, are there instances where candidates prefer to leave the column vacant, the NGO had said.