Reserve Bank Of India Plant Life Explanation Rates Unmoved - July 28, 2009

The RBI on Tuesday kept the key policy rates unchanged but increased the inflation forecast to 5 per cent. RBI kept the repo rate, at which the central bank lends cash to banks, at 4.75 per cent and the reverse repo rate, at which it absorbs surplus cash from the banking system, stays at 3.25 per cent, according to the Q1 Monetary Policy. Moreover, the RBI also kept the cash reserve ratio unchanged at 5.00 percent.

The deposit growth is seen at 19 per cent and the review has said that there is scope for the banks to slash interest rates. The SLR also remains unchanged at 24 per cent.

The GDP is expected to grow at 6 per cent while the money supply growth is seen at 18 per cent, according to the quarterly review of the economy.

Since October, RBI has cut its short-term lending rate by 425 basis points in six steps. The RBI also slashed the reverse-repo rate by 275 basis points since early December and reduced the cash reserve requirement by 400 basis points to 5 percent to keep credit flowing.

Right Instant To Go Into Long-Term Oil Contracts Of CII - July 20, 2009

The Confederation of Indian Industry (CII) has said that entering into long-term crude oil contracts and the strategically acquiring oil acreages overseas is necessary for India''s future energy security. The accelerated demand for energy makes it imperative for India to garner assured and continuous supply of energy at reasonable prices through internal efforts and acquiring international acreages.

As per CII estimates, in a business-as-usual 8% GDP growth rate scenario, the demand of Oil would be 328 Mtoe by 2030, a growth of 3.8% year-on-year.

Moreover, the chamber also emphasised that the industry, both in public and private sectors, should collaborate to secure oil equity overseas.

Even though the crude oil price has increased almost 100 per cent since February to reach $70 a barrel, it is still below $100. This is perhaps the right time to secure long-term oil supply deals at an affordable price, said the chamber.

"Ensuring India''s energy security requires active participation from the Indian industry, both public and private sectors, with support from the Government, to secure fuel supply at predictable and affordable prices," said Mr Chandrajit Banerjee, Director-General, CII.

Assocham GDP Growth Of India At 7.2 Per Cent This Fiscal - June 12, 2009

The economy of India may grow at 7.2 per cent this fiscal due to the improvement in consumer sentiment as well as policy reforms and projected growth in agriculture and industrial sector, Assocham survey said. This survey, which covers 300 businessmen, out of that about 42 per cent of the respondents said that the policy reforms would cast large impact on the GDP growth.

The majority of the respondents said that the significant reforms would be brought by the government this year and around 91% believed that in the coming months there is good scope of improvement in consumer sentiments.

However, about 40 per cent respondents felt that the isolation of rural India has a huge impact on the GDP growth, it said.

"The agriculture sector is expected to record the growth rate of 3.5 per cent as good monsoons, better crop prices and upward revision of the crop forecast has ensured a healthy growth rate for the agriculture sector," it said.

Moreover, the industry sector is expected to register a growth rate close to 4.6 per cent in the fiscal. Assocham also said that the services sector is estimated to chart a growth of 9.7 per cent in 2009-10 due to the consumer sentiment''s improvement along with the increased in government spending and anticipated reforms.

On the top of this, it said that about 75 per cent of the respondents believed that in order to stimulate the economy, the government would use further fiscal incentives.

Economy To Grow By 6.5% In Current Fiscal - March 25, 2009

The Planning Commission Deputy Chairman Montek Singh Ahluwalia on Tuesday said the economy will grow by 6.5 per cent during the current fiscal, which is much below the 7.1 per cent projected by the government earlier during the year.

Mr. Ahluwalia indicated that a 6.5 per cent GDP growth during the new fiscal starting April 1, 2009 "will be a major achievement" and would require additional stimulus - over and above what has been announced in the Interim Budget to boost the growth. Ahluwalia also said that the low inflation gives us a lot of room in (the) next six months to use all available instruments to ensure growth picks up.

He said that in spite of high fiscal deficit there is a case for more fiscal stimulus for the next fiscal. The government had announced three stimulus packages since mid-September to help industry reeling under the impact of the global economic crisis.

Real GDP Of India Is Projected To Grow By 7% In FY10 - March 17, 2009

The real GDP of India is projected to grow by seven per cent in FY10, the Centre for Monitoring Indian Economy (CMIE) said in its monthly review here. CMIE expects that the growth rate to soar slowly from around six per cent in the first-half to about eight per cent in the second-half of FY10. The global liquidity crisis has suddenly brought the economy''s growth of nine per cent to a grinding halt. However, FY10 would gradually recover from this jolt.

The Indian economy is likely to see quicker recovery in FY10 despite the global economy seems to be getting into a deep crisis. In the overall growth of the Indian economy, the agricultural sector has traditionally been the principal source of volatility. However, a decline in the GDP growth is usually due to fall in agricultural production. The agricultural sector in the last ten-year period ending 2005 reported a fall in output in every alternate year. CMIE pointed that this seriously debilitating trend seems to have been reversed. The agriculture sector has registered positive growth for four consecutive years - from FY 06 to FY 09. On the top of this, CMIE expects the sector to register a positive growth rate again in FY10. The CMIE report said, we expect the growth rate to slow down to 2.4 per cent. Nevertheless, a fifth consecutive year of positive growth in agriculture would contribute directly to the growth in FY10 and would have a positive impact on the domestic demand,".

The agriculture sector output in the third quarter of FY09 registered a fall of 2.2 per cent. "We believe that at least a part of the fall may get corrected with revisions in agriculture production data. This is likely to happen in the case of cotton and to a small extent in the case of rice."

The First Quarter GDP Growth - 30 Aug 08

The first quarter GDP growth has dropped to its slowest pace since 2004 to 7.9 per cent, from 9.2 per cent a year earlier. The manufacturing growth saw a big decline to 5.6 per cent, from 10.9 per cent a year earlier. The agriculture growth dropped to 3 per cent, as compared to 4.4 per cent a year earlier. Electricity grew at 2.6 per cent while mining sector grew at 4.8 per cent.

On the positive side, construction witnessed a big jump, increasing to 11.4 per cent year-on-year, as compared to 7.7 per cent in the previous fiscal. But analysts still see further monetary tightening by the Reserve Bank of India. We expect further monetary tightening by the central bank, S&P said. Industrialist Adi Godrej said the GDP growth at 8 per cent levels is "still good" for India. Consumer demand has been firm. Deutsch Bank however forecast a further drop in GDP growth this year. We expect GDP growth at 6%-6.5% by year end.

Economy Are Getting Stronger - Aug 13 , 2008

The signs of slowdown in the economy are getting stronger. After car sales fell 1.7% in July, the first quarter figure of industry''s performance revealed another gloomy picture. In April-June 2008, industrial growth crashed to 5.2%, against 10.3% in the same period last year.

In June, industrial growth slowed down to 5.4% from 8.9% in the same month last year as manufacturing decelerated to 5.9% from 9.7% and electricity generation to 5.4% from 8.9%. However, the June figure is an improvement over 3.8% registered in May.But, the slowdown in the industrial growth will have a direct impact on GDP growth. Industry chamber Assocham''s president Sajjan Jindal who is also MD of Jindal Vijaynagar Steel, said, it is now a matter of serious concern. We would be lucky if India achieves a GDP growth of 8% in the current fiscal as industrial production has suffered heavily.

Citigroup Global Markets, said slowdown in industrial growth in Q1 is similar to trends seen during late 1990s and given the impact of monetary tightening, GDP growth estimates will be revised downwards to 7.7% for 2008-09 and 7.9% for 2009-10. Goldman Sachs also said the June data suggests weaker industrial production has set in.A worrying factor is the slowdown in capital goods growth, which is crucial for future industrial growth. Capital goods production growth in June 2008 has declined to 5.6% from 23.1% in the same period last year. In April-June, the growth came down to 6.5% from 19.1% in the same period last year. This clearly suggests a slowdown in the investment in the industrial sector.

The growth in consumer goods sector is encouraging, considering the rise in interest rates. As RBI tightened the monetary policy to contain inflation, which pushed up the interest rates, the demand for consumer goods are likely to be affected very badly. But, the trend in June has belied that apprehension as the growth in these sectors has revived.Economists feel the revival in consumer goods'' demand is mainly on account of good monsoon and high procurement prices fixed by the government for wheat and rice. But, the high interest rate has affected investment in the infrastructure sector, which is clearly visible by the substantial decline in the production of capital goods. Growth in six core infrastructure industries, which account for 26.68% of industrial production expanded at a sluggish pace of 3.5% in April-June against 6.4% last year. Among infrastructure industries, crude production fell by 0.2% in Q1 against 0.7% a year ago.

High Interest Rates, A Slowing Global Economy, GDP Growth - June 27,2008

Inflation, fuelled by surging energy and commodity prices and interest rate hikes by the Reserve Bank, could pull down India''s economic growth from the projected eight per cent to 7.8 per cent this fiscal. High oil prices, strong input costs and a depreciating Rupee continue to exacerbate inflationary and other pressures. High interest rates, along with a slowing global economy, will trim GDP growth to 7.8 per cent in 2008-09," Standard & Poor''s Asia-Pacific Chief Economist, Subir Gokarn, said. The inflation rate was expected to be around 8.5 to nine per cent during this fiscal. Rising inflation, a forecast slowdown in economic growth, and turmoil in the global financial markets have dampened investor confidence and led to foreign capital outflow.

This has led the rupee, which was already under pressure from a rising oil import bill, to depreciate as sharply this year as it appreciated in 2007, the statement said. As global market conditions become more stable and oil prices moderate, the rupee could appreciate to around Rs 41-41.5 vis-a-vis the US dollar towards the end of the fiscal year, the statement added. The country''s current account deficit was expected to swell to about 2.6 per cent of GDP. "Fiscal improvements in the past few years are likely to be reversed this year, due to a surge in oil, fertiliser and food subsidies," the statement also said.

India Inc To Drive GDP Growth: CII Study - June 9, 2008

In the backdrop of a global economic slowdown and high oil prices, coupled with increasing inflation and tight monetary policy regime at home, which are casting a shadow on the growth prospects of the country, the Indian Industry is confident of achieving 8.6 per cent GDP growth in the current fiscal. With higher gross domestic interest rates, increasing capital expenditure by the private sector and healthy ICOR (incremental capital output ratio) at around 4.0, India could record a GDP growth of about 8.6 per cent during 2008-09, the Confederation of Indian Industry (CII) has said in a study. While noting the silver lining in the clouds, the CII study, however, pointed out that the business environment had to remain conducive for India Inc to deliver the desired results. CII''s optimism is slightly higher than finance minister, Mr P Chidambaram, who expected the economy to grow by close to 8.5 per cent this fiscal against nine per cent during 2007-08. The Prime Minister''s Economic Advisory Council had projected the economy to grow by eight per cent this fiscal.

The CII said sustained growth in net profits and gradual increase in productivity and capital efficiency had enabled the Indian corporate sector to cut costs and be globally competitive. This will drive future economic growth of India, it added. Quoting an analysis on corporate sector results over the last eight quarters pertaining to manufacturing, services other than financial services and financial services sectors, the study revealed that corporate sector performance had contributed immensely to Indian''s macro economic fundamentals.

Crisil Revises GDP Growth Forecast To 8.1pc

Rating agency Crisil has changed its GDP growth forecast to 8.1 per cent for 2008-09 from the earlier forecast of 8.5 per cent in view of the worsening inflation, interest rate and global growth outlook. Growth for sectors such as industry and services has also been adapted downwards to 8 per cent and 9.8 per cent respectively. As the current inflationary expectations are way beyond the Reserve Bank of India''s comfort zone of 4-5-5 per cent, a cut in key interest rates has been ruled out. Also, the recent reducing of global growth projections has led to revising growth projections downwards for 2008-09. The report said that inflation will remain high in the next few months due to high commodity prices globally.

Economy: The party is over

The going has been good in India in the last three years.

GDP growth has averaged more than 9%, creating millions of jobs and billions of dollars in investments.

However, the rise in inflation together with high interest rates and a potential global recession threaten to halt the Indian party this year.

Already economists are predicting a slowdown in GDP growth in 2008-09, as higher inflation is likely to force the Reserve Bank of India to hike interest rates, which will impact borrowing both for consumers and companies.

Wholesale prices shot up to 7.41% in the week ended March 28 from just 3.80% on January 12. It is also beyond RBI's self-imposed target of 5-5.50%.

The higher inflation has dashed all hopes of lower interest rates. Growth is also likely to be relatively lower than the previous years.

Dharmakirti Joshi, principal economist at rating agency Crisil, sees inflation dominating all macroeconomic calculations in 2008-09.

"Inflation is now out of the comfort zone and is beginning to hurt. There is no way interest rates are going to come down soon unless inflation declines and stays below 5% for some time," Joshi said.

Higher inflation is likely to force the RBI to hike the cash reserve ratio (CRR) — or the portion of deposits that the banks have to compulsorily park with the RBI as a safety measure — when its holds its annual monetary policy meeting on April 29. The CRR is currently at 7.75%.

Economists such as Sonal Varma and Rob Subbaraman of Lehman Brothers, who had previously expected the RBI to cut rates in by the end of 2008, are now not expecting any rate cut this year because inflation has risen faster than they had forecast.

HDFC Bank chief economist Abheek Barua expects higher interest rates in the short term.

"The RBI governor has been somewhat more hawkish than usual in the statements after the inflation data release and we expect the central bank to follow through with monetary action. The RBI could choose to excise some of this liquidity through a 50 bps (0.50%) increase in CRR," Barua wrote in a note released on Tuesday.

Higher interest rates and increasing expenses would directly mean that demand for goods and services would lessen, which could put pressure on economic growth.

The Indian economy grew by 9.4% in 2005-06 and 9.6% in '06-07. But growth is expected to be 8.7% in '07-08 courtesy interest rate hikes by the RBI.

In 2008-09, growth is likely to slow down further as high borrowing rates are likely to choke consumers and investments. And this time there will also be the rising prices to deal with.

Growth forecasts for 2008-09 are quite divergent: HSBC India economist Robert Prior-Wandesforde predicts 7% while HDFC's Barua pegs it at an optimistic 8-8.5%.

Wandesforde says higher interest rates, a stronger currency, and weaker global growth, has impacted on economic growth and will continue to do so this year.

Barua is banking on a strong pace of infrastructure development and expectations that retail lending rates are unlikely to go much higher from current levels.

Lehman's Varma and Subbaraman have predicted that measures to curb inflation will come at the cost of GDP growth.

"Growth is already facing headwinds from weakening foreign demand and tight monetary conditions. As a result, we have cut our GDP growth forecast for FY09 (Apr-08 to Mar-09) from 8.3% y-o-y to 7.6%, which is well down from 8.7% in FY08," they wrote in a note on April 11.

Besides, slowing global growth will also pull growth down. The International Monetary Fund (IMF) has predicted a 0.50% drop in global growth to 3.7% this year because of a mild recession in the US. India's growth projection has also been cut to 7.9%.

Slower growth is a consensus among economists. But which sectors will be hit the hardest? Crisil's Joshi says the sectors, which are already reeling under higher rates may feel the pinch. "Sectors like consumer loans, real estate and auto will feel the pinch.

However, some other sectors like pharmaceuticals, food and beverages and consumer non-durables may just not be impacted that much," Joshi said.

Loan growth has been hit in the banking sector as interest rates for housing, cars, and consumer durables have gone out of the reach of consumers. This in turn has had a ripple effect on the real estate and auto sectors.

Lower demand for houses means home prices have fallen but the middle class still can't afford them because of high interest rates.

Barua points out that lower growth is also impacting investment demand together with consumption and export sectors.

"Some of the expansion plans for companies are being put on hold because of the sluggish IPO market. The problems of some of the export-oriented sectors -- textiles and auto components -- are feeding through to other sectors. There appears to be a compression in sectors like textile machinery and machine tools," Barua wrote in HDFC's newsletter Ecotalk.

However, commodity segments like petroleum products, primary commodity exports and metal exports are expected to make strong gains thanks to record oil and metal prices.

Barua sees a "continued momentum" in infrastructure segments such as roads, ports, airports, urban infrastructure, telecom where either the government is a major partner (the Bharat Nirman programme for instance) or where there is sufficient clarity in the regulatory regime to sustain private sector interest (ports , telecom).