Economy
India’s macro-economic indicators improving, says Morgan Stanley

The Indian economy is supposedly recovering after three years of slowing economic growth

Morgan Stanley Research believes that the Indian economy is reversing from three years of slowing economic growth and creeping inflation and is due to stage a recovery, albeit a slow one.
 

Morgan Stanley in a report states: “We expect the initial phase of recovery to be driven by an improvement in growth mix and productivity growth rather than a big rise in investment to GDP or headline GDP growth. The starting point of macro stability environment (inflation, current account deficit and high banking sector loan deposit ratio) will still likely constrain domestic demand from staging a strong recovery.” Also, India put a strong showing amongst emerging markets for the month of April, coming out as 2nd best on both absolute as well as relative basis, according to the research note.

Several positives were observed, including exports acceleration, pick up in implementation of private projects, easing of wholesale price inflation, improved fiscal deficit and reduction of global oil prices. However, some concerns were noted which included: decrease in manufacturing output, decline in automobile sales, poorer corporate earnings and worsening credit ratio amongst corporates.
 

The key factors to look out for is government ability to contain and bring down fiscal and current account deficits, which has been deteriorating in the last few years. However, Morgan Stanley is optimistic that the government will achieve its fiscal deficit targets. The report states: “For F2013, the government is likely to achieve its revised fiscal deficit target of 5.2% of GDP, which would be a significant improvement from our tracking estimate of 6.1% in September.”
 

In the light of the recent fall in price of crude oil and gold, Morgan Stanley does not expect much of an impact of gold decline on the current account deficit as hyped earlier. But crude oil does impact quite a bit. Their sensitivity analysis states: “Every 10% reduction in crude oil prices would cut India’s current account deficit by about 0.6% of GDP. The decline in gold prices will likely have a small impact on India’s current account deficit, as we believe that the inflation direction (real interest rates) will be key for gold imports.”

Similarly, a sensitivity analysis was carried out for gauging subsidy burden. The report states: “Every $10/bbl change in oil prices changes fuel oil subsidy in India by $5.8 bn (0.3% of GDP) if domestic fuel prices are unchanged. For fiscal deficit calculation, assuming governments share in subsidy burden is at 50% (oil subsidy burden is shared by the government and oil marketing companies) a change of $ 10/bbl will affect the fiscal deficit by $ 2.9bn/0.14% of GDP.”
 


 

Even as macro indicators show improvement, there’s a concern whether companies are able to churn out profits or repay debt. More and more companies are actually making losses while the ability to repay debt is decreasing. This has put the banking sector in the spotlight and it remains to be seen how they will fare.
 

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CBI issues lookout notice against ex-IAF chief in VVIP helicopter deal

CBI has issued Lookout notice against a number of individuals in India including a former chief of IAF, the defence minister told the Lok Sabha 

 
Defence Minister AK Antony told the Lok Sabha on Monday, that the Central Bureau of Investigation (CBI) has issued a lookout notice against number of individuals, including a former chief of Indian Air Force (IAF) in connection with alleged irregularities in procurement of VVIP helicopters.
 
Though the defence minister did not name the IAF chief in his reply, the CBI is inquiring the role of former Air Chief Marshal SP Tyagi's role in the deal. Recently, Tyagi's bank account was frozen by the agency and he was also questioned by them.
 
Antony also said that the CBI has received an initial set of documents from Italy in connection with the deal. Copies of certain contracts entered by AgustaWestland with various entities in Tunisia and India have also been provided by the Italian government, he added.
 

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COMMENTS

Ravi

4 years ago

As is the usual Congress strategy -LOCK THE STABLES AFTER THE HORSES HAVE BOLTED !!!! This Thyagi guy must be enjoying the cool comforts of some Gulf country or in Swiss Alps practicing skiing. Is there any Justice in this country?

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