After almost three years of slowing economic growth and elevated inflation, we are now seeing early signs of a reversal in the stagflation-type environment as policy makers are beginning to take steps to correct the bad growth mix, Morgan Stanley said in its report on the Indian economy
According to Morgan Stanley, India’s industrial production growth for March 2013 accelerated from the previous month, and growth mix showed encouraging signs as capital goods improved for second consecutive month. Consumption indicators, particularly discretionary spending, e.g. auto sales, have remained weak. Within investment, for the quarter ended March, private projects under implementation increased slightly in year-on-year (y-o-y) terms after nine quarters of deceleration, and government projects under implementation remained steady.
However, export growth decelerated to 1.7% y-o-y in April compared to 7% y-o-y in March 2013. On a seasonally adjusted basis, exports declined by 2.8% m-o-m in April 2013. Even after the decline in April, on a seasonally adjusted cumulative basis, exports have increased by 15.5% from the trough in July 2012. The deceleration in export growth in y-o-y terms is consistent with the weaker export growth reported earlier by Korea and Taiwan, reflecting the soft patch in global growth which is expected to prevail through the second quarter.
The global investment bank points out that market-based rates have declined to a two-and-half year low as growth remains weak and inflation has decelerated. Market-based rates at both the long and short ends have declined—3M commercial paper and certificate of deposit rates have declined to a two-and-half year low, and yield on long-end bond (10 year) is near a three-year low. Indeed, liquidity conditions are showing some improvement, as gap between deposit and credit growth has narrowed, with deposits growing 13.5% y-o-y and credit growing 15% as of 3rd May.
WPI inflation decelerated significantly, to 4.89% in April versus 5.96% in March, reflecting the deceleration in food inflation (vegetable prices) and lower global commodity prices. This is the first time since November 2009 that WPI inflation has slowed to below 5%.
Deceleration in WPI is in line with softening PPI inflation in DM and EM economies due to weaker industrial commodity prices, says Morgan Stanley. Inflation as measured by the CPI, which is more important, also decelerated for a second month, to 9.4% y-o-y in Apr against 10.4% in March. Non-food inflation decelerated, albeit marginally, to 8.2% in April versus 8.6% in March. Old CPI (IW) inflation decelerated to 11.4% y-o-y in March versus 12.1% in February.
The trade deficit for April widened to $17.8 billion (11.4% of GDP) compared to $10.3 billion (6.7% of GDP) in March as export growth decelerated and imports rose, led by a surge in gold imports. Trade deficit excluding gold declined by 6% y-o-y in April.
Total government expenditure growth slowed to 3.1% y-o-y in February versus 13.8% in January. Total expenditure growth has been on a decelerating trend since September 2012, and FYTD spending growth has moderated to 10.2% y-o-y. Apart from reduction in fuel subsidy, growth in expenditure ex interest and subsidy has slowed significantly. Indeed, growth in total expenditure ex interest and subsidy payments decelerated to 3.8% in Sep-Feb 2013 from 11.4% in Apr-Aug 2012. 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.
According to Morgan Stanley this will be a challenging cycle and recovery in growth will be only gradual. Moreover, the starting point of macro stability environment (inflation, current account deficit and high banking sector loan-deposit ratio) will constrain a consumption/domestic demand led recovery. As domestic demand growth remains constrained, the investment bank expects external demand and capex spending to play an important role in supporting growth. It expects GDP growth to recover from 4.5%y-o-y in the quarter ending December 2012 to 6.3% in the quarter ending December 2013.
After almost three years of slowing economic growth and elevated inflation, we are now seeing early signs of a reversal in the stagflation-type environment as policy makers are beginning to take steps to correct the bad growth mix (high fiscal deficit and low investment). “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. As the macro stability environment (inflation, current account deficit and high banking sector loan-deposit ratio) improves, it should set the stage for a stronger recovery in growth,” Morgan Stanley said in its concluding remark.
Sharma, who holds a Masters degree in Political Science from the University of York, will take charge as Comptroller & Auditor General on 23rd May
Defence secretary Shashi Kant Sharma was on Tuesday appointed as the next Comptroller & Auditor General (CAG) at a time when the institution is under focus in the wake of controversies surrounding its mandate.
The 61-year-old 1976 Bihar cadre officer will succeed Vinod Rai, during whose tenure the CAG was locked in confrontations with government on various audit reports, like the ones on 2G spectrum and coal block allocations.
Rai superannuates on Wednesday after five-and-a half years of eventful tenure as the head of the Constitutional body.
“The President of India has appointed Shashi Kant Sharma, IAS, as the Comptroller & Auditor General of India, in terms of Article 148 (1) of the Constitution of India,” the finance ministry said in a statement.
Sharma, who holds a Masters degree in Political Science from the University of York, will take charge as Comptroller & Auditor General on 23rd May.
He will be administered the oath of office by President Pranab Mukherjee on Thursday.
Like Vinod Rai, Sharma too has served as secretary in the Department of Financial Services. He has spent over 10 years in the defence ministry in various capacities.
The CAG is appointed for a term of six years or till the incumbent attains the age of 65 years, whichever is earlier.
Sharma's appointment comes at a time when the CAG has come under sharp attack from the government and ruling party for its reports on assessment of Rs1.76 lakh crore loss in allocation of 2G spectrum.
Under Rai's tenure, the CAG was accused of going beyond its auditing ambit and indulging in analysing policy decisions.
Rai, however had hit back saying the government just wanted the CAG to be an accountant.
After failing to pay the last instalment of the franchisee fee, Sahara India decided to pull out from the IPL T20 league
Sahara India, the owner of Indian Premier League (IPL) franchisee has withdrawn its team after failing to pay final instalment of franchisee fee. In a release, Sahara also said that it would end its sponsorship to Indian cricket team from December 2013.
Board of Control for Cricket in India (BCCI), the controlling body, said it would encash the bank guarantee given by Sahara for its franchisee Pune Warriors.
Sahara had bought the Pune franchisee for Rs1,700 crore to be paid in 10 years.
Pune Warriors have finished eighth in the nine team IPL this year.
Separately, the Supreme Court today slammed the BCCI saying that spot fixing incidents had taken place due to the cricketing body’s lackadaisical approach in reining in the erring players. The court also directed a one-man commission that is probing spot fixing in the IPL to submit its report within 15 days and asked the BCCI to act upon its findings according to its rules.
Earlier, the apex court agreed to give urgent hearing to a public interest litigation (PIL) seeking stay on all remaining matches in the T20 league.