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Misrepresentation of Earnings

A recent research paper, based on a survey of chief financial officers (CFOs), shows how...

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FY13 GDP growth revised lower
The downward revision in GDP reflects the lower growth in the agriculture, mining, electricity and construction sectors of the Indian economy, says Nomura in a research note
 
The government revised lower FY13 (year ending March 2013) GDP growth to 4.5% year-on-year from 5.0% earlier. This downward revision reflects two factors: lower growth in the agriculture, mining, electricity and construction sectors; and an upward revision in FY12 GDP growth to 6.7% year-on-year from 6.2% earlier. This is according to a Nomura research note on GDP growth.
 
The downward revision in the FY13 GDP number should create a marginally positive base effect for the FY14 GDP growth rate. The advanced estimate for FY14 will be released next Friday (7th February) and Nomura expects real GDP growth of 4.7% year-on-year.
 
Separately, core infrastructure sector (weight of 37.9% in industrial production) growth rose to 2.1% year-on-year in December 2013 from 1.7% in November 2013. Electricity output expanded at its fastest pace, while coal, natural gas and refinery product output growth contracted, points out the Nomura research note.
 
On a three-month moving average basis, infrastructure sector output growth has started to moderate again (after a brief spurt in Q3 2013), suggesting that overall demand may be moderating again, says Nomura.
 
After two consecutive months of negative growth, Nomura expects industrial production growth to move into black in December 2013, but subdued growth in the core sector suggests that overall industrial activity remains very sluggish, the research note concludes.

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Government yet to cut back spending, says Nomura
The fiscal situation has been under stress because of weak revenue collection amid a slowing economy, yet-to-materialise asset sales and still-elevated spending, says Nomura in a research note
 
The government’s fiscal deficit in the first nine months (April-December 2013) of FY14 reached 95.2% of the full-year budgeted target compared with 78.8% in the same period last year, reports Nomura in its research note.
 
According to Nomura, the fiscal situation has been under stress because of weak revenue collection amid a slowing economy, yet-to-materialise asset sales and still-elevated spending.
 
Nomura’s fiscal run rate monitor indicates that last year the government had started to cut back on expenditure from October 2012, whereas this year the spending cuts are yet to happen even though the run rate on non-debt receipts is much weaker than last year (Please see Figure 1).
 
 
The government is likely to miss its revenue target owing to weaker-than-budgeted GDP growth, lower tax buoyancy and lower-than-budgeted asset sales, says the research note. Nomura expects the government to cut back spending sharply in the January-March 2014 quarter to enable it to meet its fiscal deficit target of 4.8% of GDP in FY14 at the expense of hurting growth. Nomura expects the government partly to cut planned expenditure and partly to delay payments until the next fiscal year in order to meet the fiscal deficit target, which would hurt GDP growth in H1 2014 (Please see Figure 2). 
 
 
 
Media reports suggest that the government is planning to ask for higher dividends from public sector companies, sell minority stakes in some companies and reduce expenditure by approximately Rs1,100 billion (1% of GDP).

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