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8/2/2019 Indian Economy Outlook 2012-12 Jan-12
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CRISILEcoViewJanuary 2012
GDPGrowth
GDPGrowth
Economy
Growth to remain a challenge
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Economic Research
Industry Research
Industry Risk Score
A monthly review and analysis of key macro-economic parameters along with outlooks on drivers of the economy,presented by CRISIL's team of renowned economists. Periodic outlooks and views on key regulatory and policyannouncements, besides regular in-depth analysis of key themes also form part of this document, titled 'CRISILEcoView'.
An annual service on 49 industries, our Industry Research Service offers a detailed analysis of the market, factorsimpacting performance, players and outlooks on the performance and profitability of sectors.
Covering 139 industries, CRISIL Industry Risk Scores capture the influence of industry variables and the extent of theirimpact on cash flows and debt repayment ability of companies in an industry over a short-to-medium term horizon.These scores are accessed by a large numbers of banks and corporates to assess industry risks while evaluating theperformance of companies.
CRISIL EcoView
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Dharmakirti Joshi Chief EconomistSunil K Sinha Senior Economist
Vidya Mahambare Senior EconomistParul Bhardwaj EconomistDipti Saletore EconomistAnuj Agarwal EconomistAindrila Roy Chowdhury Economist
CCER Team
Economic Outlook
Contact DetailsEmail : [email protected] : +91(22)33428000Delhi: +91(11)42505100
Growth: GDP is expected to grow at 7.0 per cent in 2012-13. This is on theassumption of a mild recession during early 2012 in Euro Zone and nosignificant progress on domestic policy reforms. The services sector, growing at8.7 per cent will remain the key driver of growth. At 5.6 per cent, industrial growthwould be relatively higher than preceding year due to RBI's supportive monetarystance.
Inflation: We expect WPI based inflation to average at 5.8 per cent in 2012-13.Overall inflation will be lower than last year because (a) low pricing power ofcorporates and (b) high base of last year that will keep food inflation lower.
Exchange rate: The rupee is expected to settle around Rs 46.5 per US dollar byMarch-end 2013. Although pressure on the current account would easesomewhat during 2012-13 as compared to 2011-12, it will remain on the higherside. However, we expect the situation in the capital account to improve onaccount of higher inflow of both FDI and FII which will support the rupee againstUS dollar.
Fiscal deficit: The fiscal deficit for 2012-13 is estimated to be at 5.5 per cent ofGDP. We expect government's revenue position to remain weak during 2012-13in view of GDP growing at 7 per cent. In addition, we do not expect either asignificant compression in government expenditure or in the subsidy burden dueto higher food, fuel and fertilizer subsidies.
Interest rate: Yield on bench mark 10 year G-sec will be in the range of 7.3 to 7.5by the March-end 2013. Although government borrowing pressure wouldremain high during the year, crowding out of private sector investment is unlikelydue to weak economic activity. Yields will soften due to (a) lower inflationexpectations and (b) monetary easing by RBI.
2011-12 2012-13
Growth Agriculture 3.8 3.0
(y-o-y, %) Industry 4.5 5.6
Services 8.9 8.7
Total 7.0 7.0
Inflation WPI - Average 9.2 5.8
Exchange rate Re/US $ (year end) 48.0 46.5
Fiscal deficit as a % of GDP 5.5 5.5
Interest rate 10- year G-Sec (year end, %) 8.5 7.3-7.5
(y-o-y, %)
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Contents Pages
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3
5
Industrial production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11
External Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Money and banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Global economic outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Quarterly update: Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
India Economy Outlook 2012-13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index
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1
Overview
Ringing in a challenging year
What a tumultuous year 2011 was. And the outlook for 2012 is far from comfortable. 2011 saw sovereign ratings of
some of the most powerful nations getting downgraded. Europe is on the verge of slipping into a recession which many
hope will be a mild and short one. But there is near consensus on the anaemic growth prospects for Europe in the
foreseeable future. The alphabet 'L' could be a close proxy for the shape of recovery and long term prospects for
Europe, bringing in memories of Japan's lost decade. The 'L' shaped path for Europe implies that Euro zone which
underwent a severe recession in 2009 and is slipping into it again will not return to its trend rate of growth. US economy
has sprung a bit of positive surprise on the growth front, but risks to its recovery remain. Given the fragility of recovery in
advanced countries, it might not be amiss to say that chances of their sinking into recession once again, cannot be
completely ruled out. The key risk is from a full blown crisis in Euro zone which can create global financial instability and
also drag down the entire advanced world. For Asia, which has held up reasonably well, there is no escaping the pain of
a hard landing in the advanced world, if that happens. To add to the woes, the murmurs of a hard landing in China,
world's second largest economy and Asia's growth locomotive, are getting louder.
In India, developments have been far from encouraging. Except the good performance of agriculture, in most other
aspects - growth, currency, fiscal deficit, manufacturing output, investments or business confidence - matters have only
worsened in 2011. The outlook has turned gloomier enough to trigger a debate on the sustainability of even 7 per cent
growth in the coming year. Escalating risks in Euro Zone, demand-reducing impact of past interest rate hikes and
emerging bottlenecks from slowed decision making in the government have cast a pall on the India outlook for 2012-13.
This month's theme crystal gazes into 2012-13, whose outlook will be based on a variety of factors- some within ourcontrol and some outside our influence.
External developments such as risk from a deep recession in Europe, movement in commodity and crude prices, are
outside India's domain of influence. But some of the risks to growth are of our own making. Unaddressed bottlenecks in
the mining sector via shortages of coal and iron ore are creating downside risks to industrial activity. Similarly
uncertainty in land acquisition and environment clearances is depressing the investment climate. Slow decision in
government is trimming the project pipeline. Although government has taken some steps to address these issues, a
swift and stronger action is required particularly in today's environment of heightened global risks. Last but not the
least, revival of the reform process, at this juncture, will not only give a boost to investor confidence but also provide
some buffer against global headwinds in 2012. From a long term perspective, these steps will raise the economy'sgrowth potential and also allow us to take advantage of global upturn whenever that happens.
Dharmakirti Joshi
Chief Economist, CRISIL
January 2012
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2
High current account deficit persists in the
second quarter of 2011-12
Industrial output contracts by 5.1 per cent inOctober
Steep fall in export growth in November
Inflation remains firm despite easing foodinflation
India's current account deficit (CAD) rose to $16.9 billionin the second quarter of 2011-12 from $15.8 billion in theprevious quarter. While the surplus on the financial andcapital accounts increased relative to the first quarter,the difference between this surplus and CAD narrowed.Merchandise trade deficit increased to $43.9 billion inthe second quarter from $41.7 billion in the previousquarter. With rising merchandise trade deficit and
moderation in net services exports, our CAD forecastnow stands at 2.9 per cent of the GDP for 2011-12.
A high base, coupled with the deterioration in bothdomestic and global demand, led to a 5.1 per centcontraction in the industrial output in October 2011.Growth in the mining sector continued to contract, by 7.2per cent, hindered by regulatory hurdles, late monsoonsand falling gas production, while manufacturing output
contracted by 6.0 per cent. We expect the weakness inindustrial growth to continue through the rest of thisfiscal year.
Growth in merchandise exports fell to a mere 3.9 percent in November 2011 as compared to 10.8 per centgrowth in the previous month. Meanwhile, growth inimports rose by 24.5 per cent. The widening gapbetween export and import levels pushed up themonthly trade deficit to $13.6 billion in November 2011.
Growth in exports is likely to remain subdued due toweak global outlook and an unfavorable base-effect.With buoyant oil imports, trade deficit is expected towiden significantly this year as compared to last year.
WPI inflation rose to 9.1 per cent in November 2011 asagainst 9.6 per cent a month earlier. However, primaryfood inflation has now fallen sharply to 0.1 per cent forthe week ending December 24, 2011. Manufacturing
inflation remained stubborn at 7.7 per cent during
November 2011, unchanged from the previous month.Food inflation is expected to fall further on account of agood harvest. However, the depreciating rupee isexpected to exert pressure on the imported componentof overall inflation.
Bank credit growth increased to 17.2 per cent for thefortnight ending December 16, 2011, from 16.4 per cent
for the fortnight ending November 18, 2011. Depositgrowth increased to 18.2 per cent. With liquidity deficit inthe banking system increasing despite RBI's steps toinject liquidity, the interbank call money rates moved upin December.
Despite higher portfolio investment inflows, persistentdollar demand owing to high import payments andcorporate debt repayment obligations saw the rupee fall
by 3.6 per cent against the dollar in December 2011.With the easing of debt market norms, net FII inflows intothe debt market totaled $4.2 billion in December. Assuming a mild recession in the EU and recoverythereafter, portfolio inflows into India should recovertowards the end of the fourth quarter of 2011-12. Wethus assign a 50 per cent probability to the rupee settlingat 48.0 to a dollar by March end 2012.
The yield on the benchmark 10-year paper stood at anaverage of 8.7 per cent in December. CRISIL expects10-year G-sec yields to be around 8.5 per cent by end-March 2012, assuming RBI does not cut the repo ratebefore April 2012. This is because, while thegovernment's market borrowing during the second halfof 2011-12 will now be higher than announced earlier,RBI will be continuing with its open market operations toincrease liquidity in the system.
Credit growth falls to around 17 per cent inDecember
Rupee touches record low of Rs 54.2 per dollarin December
10-year G-sec yields rise to 8.7 per cent inDecember
Executive Summary
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3
India's Balance of Payments (BoP) surplus shrank to
$0.27 billion in the second-quarter of 2011-12 as against
$5.4 billion in the previous quarter. The BoP surplus
dipped sharply as the current account deficit (CAD)
widened on account of the rise in trade deficit during the
quarter. For the first-half of 2011-12, the cumulative
surplus stands at $5.7 billion as compared to $7 billion in
the same period last year.
Under the Balance of Payments Manual (Sixth Edition)
BPM6 classification that was adopted by the RBI during
the last quarter, India's BoP is now divided into current,
capital and financial accounts. The current account
deficit stayed high at $16.9 billion (3.7 per cent of GDP)
in the second-quarter of 2011-12 as compared to $15.8
billion (3.4 per cent of
GDP) in the previous
quarter. Under the current
account, trade deficit
increased to $43.9 billion in the second-quarter of 2011-
12 as compared to $41.7 billion in the previous quarter,
as the gap between the absolute levels of exports and
imports widened during the reporting quarter. But, in
growth terms, exports of goods registered a growth of
47.2 per cent as compared to a growth of 35.4 per cent in
goods imports. For the rest of this fiscal, trade deficit is
expected to widen further as a weak rupee and firm
commodity prices will keep the import bill high, while
growth in exports is likely to remain subdued on the back
of rising uncertainty in the global economy.
Net secondary income that includes private transfers
(remittances from Indian overseas) jumped by almost 10
per cent in the second quarter of 2011-12 over the
previous quarter to stand at $16.2 billion. Under the new
format, instead of invisibles, services have been added
as a separate category. Net services remained flat for
the reporting quarter. Net primary income continued to
witness outflows during the second-quarter of 2011-12
as well, but in absolute terms, it increased, partly owing
to increase in net outflows under investment income as
higher interest rates in India leads to higher debt servicepayments as compared to receipts.
Going forward, for the remaining two quarters of this
fiscal, the outlook for the overall current account deficit
remains bleak. The upward pressure on CAD will mainly
come from higher merchandise trade deficit as we
expect sluggishness in exports, but no reduction in oil
prices, going forward. Also, net services exports are
expected to remain under pressure due to weak growth
prospects in the US and EU.
Under the new format, capital account now includes
mainly the official transfers, which witnessed a net inflow
of $0.2 billion in the second-quarter of 2011-12 as
against an outflow of $0.3 billion in the previous quarter.
On the other hand, under the financial account, net
financial flows increased to $17.9 billion (3.9 per cent of
GDP) in the reporting quarter as against $17.4 billion
(3.8 per cent of GDP) in the first quarter. Net financial
CCurrent accountdeficit remains high
Quarterly update: Balance of Payments
-50.0
0.0
FY10 FY11 FY10 2Q113Q10 4Q10 1Q11
Source: RBISource: RBI
Figure I: Current Account Balance (US$ bn) Table I: Current Account
Current Account balance -38.4 -46.0 -15.8 -16.9
Net Merchandise -118.4 -130.4 -41.7 -43.9
Net Services 36.2 48.7 15.4 15.5
Net Primary Income -8.0 -17.3 -4.4 -4.7
Net Secondary Income 51.8 53.1 14.8 16.2
Current Account balance -2.8 -2.7 -3.4 -3.7
Net Merchandise -8.6 -7.5 -9.0 -9.6
Net Services 2.6 2.8 3.3 3.4
Net Primary Income -0.6 -1.0 -0.9 -1.0
Net Secondary Income 3.7 3.1 3.2 3.6
FY10R FY11PR FY12(US$ bn) 1QPR 2QP
% of GDP
Note: P- Preliminary; PR-Partially revised
FY10 FY11
-38.4
-46.0
-10.1
-5.4
-15.8-16.9
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4
Table II: Capital Account
Outlook
We expect the current account deficit to widen further
in absolute terms in the remaining quarters of 2011-
12, underpinned by the rise in merchandise trade
deficit and moderation in net exports of services. In
view of the rising risks on the external account front,
we had revised our 2011-12 forecast for CAD
upwards to 3.2 per cent of GDP from 2.9 per cent
forecasted earlier. Moreover, due to heighteneduncertainty in the global scenario, the consequent
reduction in financial inflows and a weakening rupee,
the vulnerability of India's BoP account too has risen.
flows largely rose on account of other investments led by
NRI deposits that rose to $2.8 billion in the second-
quarter as against $1.2 billion in the first quarter. Trade
c red i t rema ined
hea l thy a t $2 .9
billion. During the
second quarter of
2011-12, net loans
declined by almost
27 per cent to $11.2
billion on a quarterly basis as an adverse global scenario
discouraged the non-government and non-banking
sectors (net external commercial borrowings) to borrow
externally.
Due to the ongoing Euro zone crisis, foreign inflows
have reduced in recent months. Consequently, there
was a net outflow to the tune of $1.4 billion recorded
under portfolio flows in the second quarter of 2011-12 as
against net inflows of $2.3 billion in the last quarter.
Direct investment also slowed down with the second
quarter of 2011-12 witnessing net FDI inflows of $4.4
billion as against $7.9 billion in the first quarter. For the
remaining quarters of 2011-12 also, net portfolio flows
are expected to remain subdued due to the deepeningsovereign debt crisis in Europe and its adverse impact
on the global financial markets.
For the first half of 2011-12, financial account surplus
stood at $35.3 billion as compared to $31.3 billion in the
same period last year. Going forward, the surplus under
the financial account is expected to remain modest, as
the mild recession in the Euro zone and weakness in
GGlobal uncertaintytriggers net portfolio
outflows; net direct
investment flow halves
other emerging economies are likely to trigger much
larger net portfolio outflows along with subdued direct
investment flows.
FY10R FY11PR FY12(US$ bn) 1QPR
Financial Account balance 38.2 48.9 17.4
Net Foreign Direct Investment (FDI) 18.0 9.4 7.9
Net Portfolio Investment 29.1 28.2 2.3
Net Other Investments 4.6 24.4 12.6
Financial Account balance 2.8 2.8 3.8
Net Foreign Direct Investment (FDI) 1.3 0.5 1.7
Net Portfolio Investment 2.1 1.6 0.5
Net Other Investments 0.3 1.4 2.7
2QP
17.9
4.4
-1.4
15.2
% of GDP
3.9
1.0
-0.3
3.3
Source: RBI
Figure II: Financial Account Balance (US$ bn)
38.2
48.9
9.46.2
17.4 17.9
0.0
60.0
FY10 FY11 3Q10 4Q10 1Q11 2Q11
FY11 FY12
Source: RBI Note: P- Preliminary; PR-Partially revised
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5
l Economy to grow at 7 per cent in 2012-13
l Inflation to ease to 5.8 per cent in 2012-13 as
compared to 9.2 per cent in 2011-12
l Fiscal deficit to remain high at 5.5 per cent of GDP
in 2012-13
When we had released our theme on India's economic
growth outlook for 2011-12 last year, the general view
was that India has not only emerged relativelyunscathed from the 2008 global financial crisis, but also
set to return to 8 per cent plus growth levels in 2011-12.
However, as the year progressed, pressure points
emerged both on the domestic front, due to stubborn
inflation and a policy logjam, and on the global front, due
to the Euro zone debt crisis. Consequently, market
sentiments and economic growth took a beating. As per
the Central Statistical Organisation (CSO) estimates,
GDP grew at 7.3 per cent during the first half of 2011-12,
as against 8.6 per cent during the same period in 2010-
11. Given the growth in key macroeconomic indicatorslike IIP, exports/ imports, and non food credit offtake,
GDP growth during the second half of 2011-12 is likely to
be lower than the first half.
CRISIL has therefore scaled down its GDP forecast for
the whole of 2011-12 to 7 per cent from 7.6 per cent
earlier). Though we believe that the economy's inherent
strengths are more or less intact over the medium to
long term the road to 2012-13 looks quite uncertain. This
month's Ecoview presents our forecasts of GDP growth
and other macroeconomic variables for 2012-13 and
also outlines potential risks to the economy.
The global economic landscape is uncertain; growth
forecasts by several
agencies, especially for
the Euro zone, havebeen sca led down
significantly for 2012. We
expect the Euro zone to
have a mild recession in early 2012 and status quo to
continue on the domestic policy front.
Under this scenario, GDP is expected to grow at 7 per
cent during 2012-13. The services sector is expected to
remain the key driver of economic growth during 2012-
13, growing at 8.7 per cent as against expected 8.9 per
cent in the current fiscal. Growth in the industrial sectorwould be relatively better at 5.6 per cent, due to the
Reserve Bank of India's (RBI) supportive monetary
stance.
However there are both upside and down side risk to our
growth forecast. In case domestic policy scenario
improves then we may get a higher GDP growth of 7.5
per cent. The improvement in policy scenario will
GDP growth
I. India Economy Outlook 2012-13
GGDP to grow at 7.0per cent in FY13
6.0
8.0
10.0
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
F
2012-13
F
7.0 7.0
8.5
9.5
Source: CSO, CRISIL Research
Figure 1.1: GDP (y-o-y, %)
Source : Ministry of Industry, CRISIL Research
Figure 1.2: Inflation (y-o-y,%)
9.69.2
5.8
4.0
7.0
FY11 FY12E FY13F
10.0
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6
encourage investments by lifting the sagging business
confidence and create the upside to 7 per cent growth. In
case the domestic policy logjam continues and Euro
zone debt crisis escalates then we may get a lower GDP
growth of 6.5 per cent.
Inflation
Our baseline forecast for average inflation in 2012-13 is
5.8 per cent. So far in the current fiscaL, the overall
inflation has yet not shown significant moderation and
therefore our average
inflation forecast for
2011-12 stands at 9.2 percent. However, lately the
food inflation has shown moderation and even turned
negative. We believe that this trend is temporary and will
reverse during 2012-13. Firstly, the current decline in the
prices of fruits and vegetables is due to seasonal factors
and therefore appear unsustainable. Secondly, the
implementation of Food Security Bill is likely to keep up
the demand-side pressure on food inflation. Yet, due to a
very high base of last year and lower pricing power
of corporate, we expect inflation to be much lower in
2012-13.
The risk to this projection, however, could emanate from
two factors. If the GDP grows at higher rate of 7.5 per
cent then underlying demand side pressure may push
up the inflation to 6 per cent. If, however, GDP growth
falls below 7 per cent and global oil/commodity prices
decline sharply due to escalation of Euro zone crisis
then inflation may fall to 4 per cent.
The rupee is expected to settle at around Rs 46.5 per US
dollar by March end 2013. Although, pressure on the
current account would ease somewhat during 2012-13
as compared to 2011-12, it will remain on the higher
side. However, we expect the situation in the capital
account to improve on account of higher inflow of both
FDI and FII which will
support the rupee
against US dollar. As
financial markets are
generally forward-
looking, capital inflows into India could begin even
before the actual recovery in the Euro zone. Also a
substantial part of FII money which withdraws from
emerging market economies towards the end of the
calendar year usually returns during the early part of
new calendar year after the portfolio reallocation. We
believe that with global risk aversion subsiding in 2012
and given attractive valuation of Indian equity market,
capital inflows will pick up in 2012.
The risk to this exchange rate outlook arises from a
prolonged and deeper recession in Euro zone, which
translates into sharp capital outflows and worsened
export demand. This would place rupee above 50 per
dollar.
Current account deficit
We expect current account deficit to settle at 3.0 per cent
Exchange rates
IInflation pressuresto ease
Source : FIMMDA, CRISIL Research
Figure 1.3: 10 year government security yield (March-end %)
8.0
8.5
7.3-7.5
6.8
7.5
8.2
FY11 FY12F FY13F
8.9
44.6
48.0
46.5
43.0
47.0
FY11 FY12F FY13F
%51.0
Figure 1.4: Exchange rate (INR/USD)
Source: RBI, CRISIL Research
RRupee to appreciatefrom current levels
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7
of GDP in 2012-13 as compared to 3.2 per cent
expected during the current fiscal. The marginal
downward pressure on the current account deficit in
2012-13 is expected mainly due to the improvement in
exports of both goods and services towards the second-
half of the year, aided by a modest recovery in the Euro
zone. In addition, expected softness in global
commodity prices due to the depressed global growth
and likely appreciation of the Rupee vis--vis the US
dollar next year, will exert downward pressure on the
current account deficit.
In the first-half of 2011-12, the current account deficit
swelled to $32.7 billion (3.6 per cent of GDP) from $28.9
billion (3.7 per cent of GDP) in the same period last year.
The growth was on the back of an almost 24 per cent rise
in merchandise trade deficit over the comparable
period. As per monthly data, exports displayed
unexpected buoyancy in the first-half of 2011-12,
growing strongly by 52 per
cent as compared to a 31 per
cent growth in the same period
last year. However, after
peaking in July 2011, exports
began their downward momentum, with the latestreading for November 2011 coming in at 3.9 per cent.
We believe that exports will continue to trend downward
in the second-half of 2011-12.
CRISIL expects fiscal deficit to settle at 5.5 per cent of
Fiscal deficit
GDP during 2012-13. For 2011-12 too, we had revised
our fiscal deficit forecast to 5.5 per cent of GDP from 5.2
per cent earlier (released in October 2011). The
government's budget estimate for 2011-12 meanwhile
stands at 4.6 per cent. The deterioration in fiscal deficit
numbers for 2011-12 is due to a substantial under-
budgeting of subsidies such as oil, the government's
difficulty in completing its disinvestment programme of
Rs 400 billion and a sudden increase in the borrowing
programme on two occasions, aggregating to Rs 928
billion
We expect fiscal deficit to be at 5.5 per cent of GDP
during 2012-13 due to the following factors:
1) Revenue position of the government is expected to
remain fragile.
a. During the current fiscal (April to November
2011), net tax revenue collections were at 48.2
per cent of the budgeted amount for the year, as
compared to 52.6 per cent in the previous year.
The situation is expected to be similar in the next
fiscal as well.
b. Of the Rs 400 billion of disinvestment revenue
budgeted in 2011-12, only Rs 11.4 billion have
been accrued this fiscal from stake sale in Power
Finance Corporation. Given the track record of
the government in earlier years it is unlikely that
government would be able to garner substantial
revenue for disinvestment even during 2012-13.
Source : RBI, CRISIL Research
Figure 1.5: Current account balance (% of GDP)
-2.6
-3.2-3.0
-4.0
-2.0
FY11 FY12 F FY13 F
5.1
5.5 5.5
4.0
5.0
FY11 FY12F FY13F
6.0
Source: Budget documents, CRISIL Research
Figure 1.6: Fiscal Deficit (% of GDP)
FFiscal situationto remain grim
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CRISIL EcoView
8
The repo rate forms the floor for G-sec yields in the
market. The rate cuts from RBI will lower this floor. We
do not expect much upward pressure on G-sec yield
from government borrowings as they are unlikely to
compete with private requirement for funds in a weak
growth scenario. . This will ease availability of credit for
the government and thus keep its rate of the borrowing
lower. The lower inflation and rate cuts from RBI will help
to bring down yields from the current levels. We
therefore expect interest rates on benchmark 10 year G-
Sec to soften to around 7.3-7.5 per cent by March-end
2013.
In case the government's borrowing programme rises
substantially from the budgeted figure as it has in FY12,
then interest rates on the benchmark 10-year G-Sec
could be higher than 7.3-7.5 per cent or vice versa if the
Euro zone crisis deepens further, lowering global
commodity prices and thus lower government's subsidy
bill.
CRISIL's macroeconomic forecasts set out here are
based on our view of the domestic and global factors
that shape up macroeconomic outcomes. However, we
do recognize that our outlook on India's macroeconomic
variables are strongly linked and dependent on the
assumptions that we have made and can pan out
differently if our assumptions do not turn out to be true.
Domestically as well as globally, economic environment
is much more uncertain and risky currently. Therefore,
instead of a single growth outlook, we have tried to put
forward scenarios for various macro-economic
indicators based on our understanding of how they will
evolve over the course of 2012-13.
Conclusion
2. For FY2011-12, several ministries have been
advised to curtail expenditure to contain fiscal
deficit from overshooting much beyond target.
Much of these curtailed expenses could get
spilled over to
the next fiscal.
In add i t i on ,
overall subsidy
burden due to
continued food, fuel, fertilizer subsidy and
various other social sector programs are likely to
remain high. In addition, if the Food Security Bill
is fully implemented, food subsidies will
escalate.
Fiscal deficit to GDP could be lower in 2012-13 if (a)
GDP growth exceeds 7.0 per cent which would yield
higher tax as well as disinvestment revenues due to an
improving investment climate, and (b) there is
substantial pass-through of fuel prices which would
alleviate the petroleum subsidy burden. A much higher-
than-forecast fiscal deficit could emerge if GDP growth
dips sub-7 per cent and there is inability to pass-through
of petroleum subsidy burden.
With food inflation turning negative recently and GDP
growth falling below 7.0 per cent in the second quarter of
2011-12, there is an expectation of an early reversal in
RBI's monetary stance. The central bank's third quarter
review of monetary policy is due on January 24, 2012.
Although the RBI has indicated that in view of falling
inflation, its focus is going to shift towards supporting
growth, it is unlikely to cut key policy rates before the Q1
of 2012-13 unless it gets enough comfort on the inflation
front.
Interest rate
GGsec yields to softenin 2012-13
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Industrial output contracted by a hefty 5.1 per cent in
October 2011 as compared to 1.9 per cent growth in the
previous month. A high base, coupled with
deterioration in the domestic and global economic
scenario, led to the sharp fall in the industrial growth.
The industria l output
growth has been sliding for
the past few months. The
underlying weakness has
been quite aptly captured
by the industrial output
growth on a seasonally-adjusted m-o-m basis, whichdeclined to the tune of 3.1 per cent in October 2011.
Growth in all the sectors of IIP, except electricity, turned
negative in October 2011. On a cumulative basis,
industrial output for the first 7 (April-October) months
of 2011-12 stood at an anaemic 3.5 per cent as
compared to a healthy 8.7 per cent in the same period
last year.
Mirroring the weakness in the overall industrial output,
core sector growth also dipped sharply to 0.1 per cent
in October 2011. This is the lowest level since July2005. Barring electricity, cement and steel, all other
core industry segments registered negative growth
during the month. This is the fourth consecutive month
of sluggish growth in industrial output and indicates
that the downside risks for the domestic growth
scenario have increased. A conjunction of factors such
as high funding & input costs, policy inaction and risk
aversion in global markets have continued to weigh on
industrial growth in this fiscal year.
Manufacturing output contracted by 6.0 per cent in
October 2011 as compared to a growth of 2.4 per cent
in the previous month. The average growth for the
manufacturing sector for the April-October2011 period
stood at a dismal 3.7 per cent as compared to 9.4 per
cent in the corresponding period in the previous year.
At the 2-digit classification level, out of 22 of
manufacturing groups, only 13 showed positive growth
in October 2011.
The mining sector continues to face challenges in this
fiscal year. In October 2011, the sector's output
contracted by 7.2 per cent, taking the cumulative fall in
the first 7 months of 2011-12 to 2.2 per cent. The ban on
mining iron ore in
some states, late
m o n s o o n ( w h i c h
c u r b e d c o a l
production) and falling
gas production from
the KG basin are some of the reasons why the miningsector took a beating so far this year. This weakness in
growth in the mining sector is a matter of concern as it
adversely impacts the manufacturing sector's output.
Growth in capital goods contracted for the second
consecutive month in October 2011 and slid sharply by
25.5 per cent. The sector's volatile and weak growth
trajectory during this fiscal year reflects the weak
II. Industrial Production
IIndustrial growthslumps on broad
sectoral slowdown
Source: CSO
Figure 2.1: Manufacturing Sector Growth (%)
FY12
4.8
9.0
12.4
0.0
7.0
14.0
-7.0Oct OctFY10 FY11 Feb
-6.0
FY11
MMining sector outputcontracts for the third
consecutive month
Source: CSO
Table 2.1: Sectoral Growth (y-o-y %)
April-OctoberWeight Oct-10 Oct-11 2010-11
General 1000.0 11.4 -5.1 8.7
Manufacturing 755.3 12.4 -6.0 9.4
Mining 141.6 6.1 -7.2 6.9
Electricity 103.2 8.8 5.6 4.5
Basic 355.7 9.8 -0.1 5.5
Capital 92.6 21.1 -25.5 17.1
Intermediates 265.1 9.7 -4.7 8.6
Consumer Goods 286.6 9.4 -0.8 9.1
-Durables 53.7 14.3 -0.3 15.7
-Non durables 233.0 5.1 -1.3 3.9
2011-12
3.5
3.7
-2.2
8.9Use Based Industry (%)
5.8
-0.3
0.6
3.7
4.5
2.9
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CRISIL EcoView
10
Note - Please refer to Annex (Table 8.4) for full description of abbrev used in the textSource: CSO
April-OctoberWeight Oct-10 Oct-11 2010-11
Food & Bev 72.76 -3.7 14.7 7.0 15.6
Other transport 18.25 43.7 1.9 30.3 14.9
Office Eqp 3.05 10.4 18.4 -4.7 13.8
Metal Products 30.85 18.2 6.2 14.8 12.9
Basic metals 113.35 18.5 2.9 6.4 12.8
Motor Vehicles 40.64 27.2 -7.1 36.3 10.6
Media 10.78 19.2 2.7 12.0 8.0
Communication 9.89 12.2 15.3 15.8 6.6
Leather products 5.82 11.5 -2.1 6.4 5.4
Paper 9.99 16.5 2.1 7.8 5.0
Petroleum products 67.15 -7.9 -3.5 -2.6 4.1
2011-12April-October
Weight Oct-10 Oct-11 2010-11
Electronics 19.8 15.9 -58.8 3.3 -14.2
Apparel 27.82 15.4 -5.7 5.9 -6.8
Mach. & Eqp 37.63 36.0 -12.1 34.1 -3.3
Textiles 61.64 11.8 -11.0 6.8 -3.1
Rubber 20.25 18.1 -11.4 16.9 -2.7
Wood 10.51 -7.7 1.9 1.9 -2.7
Chemical 100.59 3.3 -6.7 -0.9 -1.7
Tobacco 15.7 9.8 0.8 10.5 -0.8
Furniture 29.97 -8.3 0.3 -6.3 0.3
Medical 5.67 -9.1 30.8 9.5 2.1
NMMP 43.14 11.5 2.7 6.1 2.6
2011-12
investment scenario in the country. Cumulatively, for
the first 7 months of this fiscal, output in the capital
goods sector contracted by 0.3 per cent as comparedwith an impressive double-digit growth of 17.1 per cent
during the same period last year. Basic goods output
too slid into the negative territory after a gap of almost
two-and-a-half years; it contracted by 0.1 per cent in
October 2011 as compared to a healthy 9.8 per cent
growth in the same month last year.
The adverse impact of high interest rates and inflation
continues to affect growth in the consumer goods
sector. In October 2011, growth in consumer goods slid
into the negative territory after a gap of more than 2years. Growth in non-durables has remained in the red
since the past 3 months. Consumer durables dipped
into the negative territory (-
0.3 per cent) after a gap of
two-and-a-half years. There
have been early signs of this
decline with the fall in credit
offtake in this sector. Rising
inflation has hurt the sector's growth during this fiscal
year. Persistent sluggishness in growth in intermediate
goods reflects underlying weakness in the capital and
consumer goods sector. Intermediate goods grew by apaltry 0.6 per cent in the first 7 months of the current
fiscal year as compared to 8.6 per cent during the same
period last year.
The forward-looking indicators also indicate worsening
of both domestic and global conditions far more than
anticipated earlier. The momentum of exports has now
started to decelerate after displaying unexpected
buoyancy in the first half of the current fiscal year. As
per the provisional estimates, on a y-o-y basis, growthin exports plummeted to 4.2 per cent in November
2011. This downward trend is expected to continue for
the remaining months of the fiscal year due to
deterioration in the Eurozone growth prospects.
Consequently, growth in the export-intensive sectors
like textiles and leather products will slow down, going
forward. In addition, sales growth prospects in the
passenger vehicles and 2-wheelers segments remain
bleak, despite marginal recovery lately due to the low
base of last year. Rising funding and input costs will
adversely impact this sector.
Table 2.3: Laggards in Manufacturing Sector (%)Table 2.2: Performers in Manufacturing Sector (%)
The industrial sector has been besieged by several
factors lately. On the domestic front, it has been
severely hit by persistent inflation, the rising cost of
capital, policy log-jam and unavailability of suitable
workforce. On the global front, dwindling export
demand, heightened risk aversion due to the EU's
sovereign crisis and continued firmness in energy
prices have only aggravated the situation. Although
the extent of weakness in the IIP data during October2011 surprised us as well, we expect the IIP growth to
remain weak, but in the positive territory for the
remaining months of this fiscal.
Outlook
CConsumer goodsoutput declines
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III. Services
The latest GDP figures point to some decline, albeit
robustness in services sector growth. During the second
quarter of 2011-12, the services sector registered a
growth of 9.3 per cent. The sector had registered a
growth of 10.0 per cent during
the previous quarter and 9.6
per cent during the second
quarter of 2010-11. Trade,
h o t e l s , t r a n s p o r t a n d
communications registered a growth of 9.9 per cent in
the second quarter of 2011-12, down from 12.8 per cent
in the previous quarter. However, financing, insurance,real estate and business services grew at 10.5 per cent
in the second quarter of 2011-12, up from 9.1 per cent
during the previous quarter. Similarly, community, social
and personal services also fared well, growing at 6.6 per
cent during the second quarter, up from 5.6 per cent in
the first quarter.
In November 2011, foreign tourist arrivals stood at 6.37
lakhs, which on a seasonally adjusted basis amounts to
a contraction of 0.7 per cent over the previous month,
but a 5.1 per cent growth over November 2010.Revenue from tourism was about 8.14 per cent higher
than a year ago, totaling US$1.5 billion during
November 2011. During the fiscal year so far revenue
from tourism has risen by 21.82 per cent, over last year.
The latest data available for port traffic shows a decline
in domestic and international cargo handled at major
ports. On a monthly basis, the cargo handled at major
ports registered a decline for the third consecutive
month in October 2011. Cargo handled at major ports
recorded a decline of 3.7 per cent in October 2011 over
the previous month. On an annual basis, there has been
a decline in the cargo
handled at these
ports since the beginning
of the second quarter of
this fiscal. On a y-o-y
basis, the cargo handled at
major ports registered a
decline of 9.7 per cent in October 2011. Railway freight,
on the other hand, showed an increase of 5.92 per cent
on an annual basis. The railways carried 81.08 million
tonnes of freight in November 2011. On a cumulative
basis, since the beginning of this fiscal, freight carried by
railways saw an increase of 4.1 per cent over the same
period last year.
As per the latest data, total air passenger traffic
contracted by 3.3 per cent in July 2011, as opposed to a
contraction of 2.5 per cent in the previous month. July
2011 saw domestic passenger traffic fall by 5.3 per centover the previous month, while international passenger
traffic registered a growth of 5.5 per cent.
The data released by the Telecom Regulatory Authority
of India (TRAI) pegs the total telecom subscriptions at
914.59 million in October 2011, up from 906.93 million in
the previous month and 742.12 million a year ago.
Wireless subscriptions stood at 881.40 million in
Source: RBI
Figure 3.2: Credit flow to services (y-o-y %)
15.0
Apr-10 Jan-11 Oct-11
Services
Trade', 'Tourism, Hotels & Restaurants', 'Transport Operators'
NBFC', 'Real estate', 'Professional Services', 'Shipping'
5.0
25.0
35.0
45.0
CCargo handledat ports declines
for 3rd consecutive
month
SServices growthslows down
11
Figure 3.1: Foreign Tourist Arrivals (FTA) , (%)
Source: Ministry of Tourism
17.7
5.1
-0.7
3.02.8
4.4
8.6
2.0
8.0
14.0
20.0
FY10 FY10 FY11 Apr Jun Oct Nov
FY12
Aug
FTA (y-o-y) SA FTA (m-o-m)
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October 2011, growing at 24.72 per cent over last year,
while wired line subscriptions declined by 6.32 per cent
over the previous year and stood at 33.19 million.Teledensity increased to 76.03 from 75.48 a month ago
and 62.51 a year ago. At the end of October 2011, the
share of PSU telecom players increased marginally to
12.19 per cent from 11.60 per cent a month ago.
Credit offtake in the services sector continued to decline.
Credit growth to services declined to 13.5 per cent in
November 2011, down from 15.5 per cent in the last
month and 19.3 per cent in September 2011. Growth in
credit disbursements to trade however increased
marginally 14.0 per cent in November 2011, from 13.0per cent a month ago and 9.1 per cent during September
2011. Credit growth to commercial real estate has also
been declining since the second quarter of this fiscal. It
stood at 10.7 per cent in November 2011. Credit growth
to transport operators and tourism was 13.9 per cent
and 12.3 per cent, respectively, in November 2011.
Persistent inflation and slowdown in the growth ofpersonal consumption expenditure is expected to hit
growth in the services sector adversely. Also, with the
effect of the slowing industry spilling over onto the
services sector, and a reduced demand for services,
we expect the sector to grow at 8.9 per cent during
2011-12.
Outlook
Source: Airport Authority of India
Figure 3.3: Cargo traffic 3-month MA (y-o-y %)
-10.0
40.0
20.0
0.0
Apr-10 Jan-11 Oct-11
Cargo Handled: Domestic Cargo Handled: International
3 month MA (yoy%)
CRISIL EcoView
12
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Against the backdrop of an uncertain and uneven
global economy, growth in India's exports moderated
further to 3.9 per cent in
November 2011 as
compared to 10.8 per
cent in the previous
month. However, on a
seasonally-adjusted month-on-month (m-o-m) basis,
growth in exports declined marginally by 0.2 per cent,
taking the absolute number to $22.3 billion.
The Ministry of Commerce, conceded to theoverestimation in the export numbers in the current
fiscal. These numbers were neither adequately
supported by macroeconomic indicators, like industrial
output growth, nor were they in sync with the global
slowdown. The Ministry admitted to the numbers being
inflated by $9 billion in the April-November period of the
current fiscal, with the error being attributed to double-
counting and problems in computer software, etc. After
accounting for all these data revisions, the cumulative
exports for the first 8 months now stand at $192.7
billion.
Meanwhile, growth in imports rose by 24.5 per cent and
stood at $35.9 billion in November 2011. After
revisions, cumulative imports for April-November 2011
stand at $309.5 billion as compared to $237.7 billion
over the same period last year. In November 2011,
healthy growth in both, oil and non-oil imports, spurred
the growth in imports. Growth in oil imports accelerated
sharply to 32.3 per cent supported by a weakened
IV. External Sector
Source: Ministry of Commerce
178.0
237.9
0.0
50.0
100.0
150.0
200.0
250.0
FY10 FY11 Apr May Jun Jul
FY12
Figure 4.1: Exports Performance (US$ bn)
Aug NovSep Oct
Source: Ministry of Commerce
April-November
Table 4.1: Trade Performance
2011-12Nov-10 Nov-11 2010-11
Exports 21.5 22.3 144.7
Imports 28.8 35.9 237.7
Oil Imports 7.8 10.3 66.0
Non-oil Imports 21.1 25.6 171.7
Trade Balance -7.4 -13.6 -93.0
Exports 26.5 3.9 29.4
Imports 11.2 24.5 28.3Oil Imports 2.3 32.3 25.4
Non-oil Imports 15.0 21.7 29.5
Trade deficit -11.6 85.0 26.4
Merchandise(US$ billion)
192.7
309.5
94.1
215.4
-116.8
y-o-y %
33.2
30.2
40.8
25.5
25.6
Going forward, growth in exports is likely to remain
subdued due to the weak global outlook and anunfavourable base effect. Continued high oil imports
will keep the overall imports bill firm, while declining
non-oil imports (due to slackening domestic demand)
will prevent imports from rising at a fast pace. But
overall, trade deficit will widen significantly this year
as compared to the last year.
Outlook
rupee, which is inflating the import bill (India imports
almost 75 per cent of its crude oil requirements). Non-
oil imports also remained firm at
21.7 per cent in November 2011,
despite weak domestic demand.
The gap between exports and
imports levels continued to rise,
thereby pushing up the monthly trade deficit to $13.6
billion in November 2011.
Going forward, growth in exports is likely to remain
subdued on account of the weak global outlook, but therising oil imports bill will keep growth in imports firm.
Trade deficit is also likely to remain high this fiscal, as
unlike in the previous global crisis period, commodity
prices have not fallen sharply this time around. Hence,
while exports have moderated, imports have not fallen
at the same rate.
TTrade deficitremains high
GGrowth in exportsremains sluggish
13
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Source: Ministry of Industry & CRISIL Estimate
Table 5.1: Inflation in Major Product Groups
General 100.00 8.2 9.1 9.6
Primary 20.12 14.7 8.5 18.4
Fuel 14.91 10.3 15.5 12.5
Manufacturing 64.97 12.0 7.7 5.5
Primary - 43.7 24.3 45.2
Fuel - 19.0 26.2 19.6
Manufacturing - 37.0 49.6 35.3
2011-12
April-NovemberWeight Nov-10 Nov-11 2010-11
y-o-y %
9.6
11.9
13.4
7.6
Contribution to inflation
31.4
21.6
47.1
Source: Ministry of Industry
3.8
9.6
0.0
6.0
12.0
FY10 Oct May Nov
WPI CPI-IW
FY12
9.1
9.39.7
9.1
Figure 5.1: Headline Inflation (y-o-y %)
FY11
FY11
WPI rose by 9.1 per cent in November 2011 as against
9.6 per cent a month earlier. Inflation for September
2011 was revised upward to 10.0 per cent from 9.7
reported earlier. During the month, food inflation
(primary and manufactured) declined sharply, bringing
down overall inflation. But, fuel inflation surged higher
while core inflation (non-food manufacturing) too
remained firm. Despite domestic demand weakening
during the first two quarters of the current fiscal, WPI
inflation has remained high and stubborn reflecting
price stickiness as well as impact of continued
depreciation in rupee. Recent weakness in thecurrency has pushed up the cost of imports of edible
oil, fuels and metals despite some decline in their
international prices. The fall in rupee and its adverse
impact on inflation prompted us to make an upward
revision to CRISIL Research's average inflation
forecast for 2011-12. It now stands at 9.2 per cent as
compared to 9.1 per cent forecasted earlier.
The month-on-month seasonally adjusted inflation
series moderated for the second consecutive month,
after a spike in September2011 . On a mon th l y
average basis, the index
rose by 0.46 per cent during
April to November 2011,
compared to 0.52 per cent
in the same period of 2010.
Consumer price inflation (for industrial workers)
declined marginally to 9.3 per cent in November 2011,
from 9.4 per cent in the previous month. Inflation in the
fiscal year so far (April to November 2011) stands at 9.1
per cent compared to 9.6 per cent during the same
period of 2010.
During November 2011, there was sharp deceleration
in primary articles' inflation. Inflation in this category
fell to 8.5 per cent from 11.4 per cent in the previous
month. This was due to a steep fall in primary food
inflation (especially in fruits, vegetables and poultry) to
8.5 per cent from 11.1 per cent in the previous month.
Normal monsoons and a good harvest have kept food
inflation in check. Non-food inflation (especially fibres)
has also declined substantially as it came down to 3.2
per cent in November 2011, compared to 7.7 per cent in
the previous month.
Weekly trends in inflation data depict that primary
articles' inflation has almost halved during December
2011, compared to the previous month. With food
inflation at 0.8 per cent
average, primary articles'
inflation is seen at 3.0 percent. Fuel inflation is expected
at 14.9 per cent average
during December. Most of the
decline in food inflation is due to fall in prices of fruits &
vegetables, condiment & spices, and lower inflation in
eggs, meat and fish.
During November 2011, fuel inflation rose to 15.5 per
V. Inflation
IInflation remainsfirm despite easing
food inflation
CRISIL EcoView
14
FFood inflation at
nearly zero
in December
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Source: Ministry of Industry
Table 5.2: Inflation in Primary Articles (y-o-y %)
April-NovemberWeight Nov-10 Nov-11 2010-11
Cereals 3.37 3.2 2.4 6.7
Pulses 0.72 -10.0 13.9 10.0 -
Fruits & Vegetables 3.84 7.9 9.6 12.0
Eggs,Meat & Fish 2.41 18.9 11.9 31.5
Fibres 0.88 44.7 1.6 26.0
Oilseeds 1.78 3.1 11.3 3.9
Metallic Minerals 0.49 69.9 -2.2 52.0
Other Minerals 0.13 7.9 1.8 2.7
2011-12
4.6
1.5
14.9
10.5
34.1
12.7
6.9
9.0
Table 5.3: Inflation in Manufactured Products (y-o-y %)
April-NovemberWeight Nov-10 Nov-11 2010-11
Chemicals 12.02 5.2 9.5 4.9
Food Products 9.97 1.1 6.8 5.3
Textiles 7.33 11.7 6.6 10.6
Machine Tools 8.93 2.9 3.5 2.6
Metal & Alloys 10.75 7.8 13.0 7.9
Transport Eqp. 5.21 2.7 4.6 3.0
NMMP 2.56 2.1 6.1 2.6
Rubber & Plastic 2.99 7.5 5.1 5.4
2011-12
8.4
7.7
11.3
3.2
10.6
3.5
4.3
7.6
Source: Ministry of Industry
cent compared to 14.8 per cent in the previous month,
due to sustained increase in prices of aviation turbine
fuel, naptha, bitumen and furnace prices of which areinternationally linked. An extended period of sharp
rupee depreciation is influencing the imported
components of inflation.
For instance, while the
global crude oil prices
rose by nearly 20.0 per
cent in November 2011
compared to a year
earlier, the rupee price of oil shot up by around 40.0 per
cent due to currency depreciation. On a month-on-
month basis, the fuel index rose 0.9 per cent inNovember 2011, compared to 1.0 per cent in the
previous month.
Manufacturing inflation remained stubborn at 7.7 per
cent during November 2011, unchanged from the
previous month. Manufactured food inflation
decelerated to 6.6 per cent compared to 7.6 per cent in
October 2011. Despite slowing growth, core (non-food
manufacturing) inflation is still showing no signs of
decline. Non-food inflation rose further to 7.9 per cent
from 7.7 per cent in the previous month. Within non-
food manufacturing, inflation in paper, leather,chemicals, metals, machine tools & transport
equipment stayed firm, while beverages & tobacco
products, textiles, & rubber and plastics saw some
moderation.
CCore inflation risesto 7.9 per cent
in December
15
Looking ahead, inflation will fall further as foodinflation declines due to good harvest and slowing
demand. The pace of fuel inflation will depend on the
response of oil/commodity prices to global slowdown,
the extent of pass-through into domestic market and
the Rupee-USD equation as the recent depreciation
of the rupee has pushed up the imported component
of inflation. We believe that WPI inflation will fall
around RBI's projection of 7.0 per cent by March
2012. Nonetheless, it will remain above the RBI's
tolerance limit of 5 per cent for some months even in
the next fiscal.
Outlook
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Source: RBI
Table 6.1: Scheduled Commercial Banking Indicators (y-o-y%)
2010 2010-11 2011-12Financial Year so far
th
Outstanding as on 16 Dec2011
Aggregate Deposits 14.7 18.2 6.8
Bank Credit 23.7 17.2 12.2
Food Credit 38.8 32.6 28.9
Non-Food credit 23.5 17.0 11.9
Investments 6.9 16.3 4.2
Credit-Deposit Ratio 75.8 75.2 113.3*
9.0
8.3
29.0
8.0
11.9
71.9*
*Note: Incremental credit deposit ratio as on dateSource: RBI
Figure 6.1: Money Supply Growth (%)
FY12
0.0
10.0
20.0
FY10 FY11 Sep May Dec
y-o-y19.3
16.0
FY11
16.515.5
A tight interbank liquidity situation prompted the RBI to
conduct four open market operations (OMOs -
purchase of government securities) in December
2011. These were conducted, on December 1, 8, 22
and 29, in 2011 and it infused Rs 57.82 billion, Rs 90.92
billion, Rs 87.90 billion and Rs 81.09 billion,
respectively into the banking system. Together, a total
of five such OMOs have been conducted since
November 2011. During the month, the average net
liquidity in the banking system (repo less reverse repo
balance) remained above Rs 1 trillion. Despite multiple
injections of liquidity by the RBI, the interbank liquiditysituation continues to be strained, because the
increased money supply is sucked up by the auction of
G-sec issues, which closely follows the OMOs. With
the recent announcement by the government to raise
further debt, more such OMOs are likely to happen as
the liquidity in the banking system will remain
stretched. Policy rates are at high levels of 8.5 for repo,
7.5 for reverse repo and 9.5 per cent for Marginal
Standing Facility.
Growth in bank credit increased to 17.2 per cent for the
f o r t n i g h t e n d i n g
December 16, 2011, from
16.4 per cent for the
f o r t n i g h t e n d i n g
November 18, 2011. Non-
food credit growth also
fell to 17.0 per cent from
17.4 per cent last month. Credit to deposit ratio
increased to 75.2 per cent as against 74.2 per cent last
month. This takes the credit deposit ratio to the levels
of last year. As per data on sectoral deployment of bank
credit, which is available for November 2011, overall
non-food credit growth declined from 18.2 per cent in
October to 16.8 per cent in November 2011. Credit
growth in the manufacturing sector declined marginally
from 14.48 per cent to 13.54 per cent in the reporting
month. Industrial credit growth also showed a declining
trend and reached 20.86 per cent as against 23.07 per
cent in October, 2011. Though mining and quarrying
credit growth showed a declining trend amongindustries, it continued to remain at a high level of 41.2
per cent. Credit offtake to the services sector for
November 2011 was 16.94 per cent as against 22.53
per cent last year. Credit growth in the housing sector
dipped further to reach 1.91 per cent as against 3.51 in
October 2011. However, credit growth in exports
increased further and reached 39.4 per cent in
November 2011. This can be explained by the
increased cost of the inputs needed to manufacture
India's basket of exports. Also, since India is
substantially dependent on imports for most of its raw
materials, a depreciating currency has hit the cost of
production of the exporters, thereby increasing their
need for credit. But export-related industries like gems
& jewellery, textiles, chemicals & chemical products
witnessed a slowdown in the credit growth in
November 2011 as against October 2011 on account of
weaker demand from Europe. Credit growth to the
consumer durables sector contracted further and
VI. Money and Banking
CCredit growthslows to 17 per cent
in December 2011
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Source: CCIL & RBI
0.5
3.5
6.5
Figure 6.2: Liquidity Situation In India
FY11
-1200.0
0.0
600.0
1200.0
1800.0
-600.0
-1800.0Dec-10 Aug-11 Sep-11 Nov-11Feb-11 Apr -11 Jun-11
FY12
Net LAF transactions, Rs bn (LHS) Call rates Repo rate Reverse repo rate Marginal Standing Facility
reached -8.51 per cent, the lowest level in the last 23
months. This has been one of the hardest hit sectors in
the past few months because of the hike in interestrates by the RBI. Deposit growth increased marginally
and reached 18.2 per cent for the fortnight ending
December 16, 2011. Increasing deposit growth and
slow credit growth pushed the incremental credit-to-
deposit ratio to 71.9 in December as against 77.6 per
cent last month.
Having shown a declining trend in the past few months,
money supply (M3 ) growth increased to 16.5 per cent
(y-o-y) for the fortnight
ending December 16, 2011.
During the reporting period,
growth in bank credit to the
commercial sector dropped
further to 16.4 per cent from
17.7 per cent last month.
Growth in net bank credit to the government remained
at around 22 per cent for the fortnight ending
December 16, 2011. However, banks' investments in
government securities declined further to 16.14 per
cent for the fortnight ending December 16, 2011. The
total investment of banks in government securities as a
percentage of total deposits remained at around 29 percent, almost the same level as last year.
Government borrowings slowed somewhat in
December 2011 vis--vis the last month. It borrowed
Rs 420 billion via treasury bills, Rs 134.59 billion came
from state development loans and Rs 400 billion from
dated securities. As compared to this, the government
had borrowed Rs 320 billion in November 2011 via
The Union Government announced that it would
increase its borrowing by Rs 400 billion in December
2011. This will take the total gross borrowing by the
government to 5.1 trillion and exert further pressure
on both, liquidity and bond yields. Likelihood of further
OMOs remains high.
Outlook
treasury bills, Rs 120. 97 billion via state development
loans, Rs 520 billion via
dated securities and Rs150 b i l l ion v ia cash
management bills. The
continued increase in the
government's long-term
borrowing had pushed the
average 10-year G-sec yield to 9.1 per cent in
November 2011 from an average of 8.9 per cent in
October 2011.
Average call rates for December 2011 increased
further to around 8.9 per cent. Daily net transactions
under the liquidity adjustment facility (LAF) window
increased to Rs 1.16 trillion this month, indicating a
liquidity crunch in the system. Following the increase in
government borrowings, and the severe liquidity
crunch in the system, further OMOs were carried out
during the month.Continued tight monetary policy and
severe shortage of inter-bank liquidity pushed average
call rates to 8.5 per cent in November 2011. Daily net
transactions under the liquidity adjustment facility
(LAF) window increased to Rs 928 billion this month,
showing severe liquidity crisis in the system.
HHigh governmentborrowings keepliquidity under
pressure
10.0
MMoney supplygrowth moves upin December 2011
%
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Source: RBI
Table 7.1: Currency Movement (Monthly Averages)
Note: * As of 23rd December, 2011
USD GBP Euro Yen
FY 11 45.6 70.9 60.2 53.3
H1 FY11 46.1 70.1 59.0 51.9
H2 FY11 45.1 71.7 61.4 54.7
H1 FY12 45.3 73.3 64.5 56.9
Q3 FY12 51.0 80.1 68.6 65.9
November-11 50.8 80.3 68.9 65.6
1--month 8.7
6-months 6.5
Indian Rupee vis--vis
December-11 52.7 82.1 69.3 67.7
Forward premia*
-2.0
0.0
3.0
44.0
49.0
54.0
Source: SEBI, RBI
Figure 7.1: Net FII Inflows and Exchange Rate
May-08 Oct-09 Jan-11 Dec-11
FY09 FY10 FY11
Net Fll inflow US$ bn (LHS) Rs per USD
FY12
Currency
The rupee continued to decline against all major
currencies in December 2011. On a monthly average
basis, it fell by 3.6 per cent against the dollar, as
compared to 3.2 per cent in the previous month. On the
supply-side, a mix of factors such as weak growth
prospects in the Euro zone, increased speculation of a
credit freeze, slowing domestic GDP growth in the
second quarter of the fiscal year and a contraction in
industrial growth during October 2011 caused foreign
investors to shy away from Indian markets. Thisreduced the supply of dollars. There was some respite
due to RBI's decision to raise the limits on foreign
investment in government and corporate debt market.
On the demand-side, persistent demand for the dollar
to make import payments and to address the huge
foreign loan repayment obligations of corporate India,
kept the currency at record lows. The sharp fall in the
rupee saw the RBI intervening in the currency market
on a few occasions. RBI also issued directives to
reduce the speculative element and hence, volatility in
the currency market.
During the month, global crude oil prices fell by 2.6 per
cent on a month-on-month basis. In the forwardmarket, the one month premium rose by 37.1 per cent,
while the 6-month premium rose by 65.8 per cent. The
rupee touched a record low of 54.2 to a dollar inDecember 2011, much beyond than the previous
record low of 52.1 in March 2009. Volatility in the rupeewas high as the currency hovered between 51.4 and
VII. Markets 54.2 per dollar. The rupee also continued its downwardmovement against all other currencies, although the
decline against the pound and the euro were lower thanthe previous months. It fell 2.3 per cent against thepound and 0.6 per
cent against the
euro in December2 0 1 1 , a s
compared to 3.6per cent and 2.1
per cent in the previous month. On a monthly average
basis, it posted a sharper fall of 3.1 per cent against theyen in December 2011, in comparison with 2.3 per cent
in the previous month.
In December 2011, foreign institutional investment(FII) gathered some pace mainly due to relaxation of
investment in debt securities. For the month, net FII
inflows were recorded at $4.2 billion as compared tonet outflows of $0.6 billion in November 2011. Almost
all the money pumped in went into debt instruments.
RRupee touches recordlow of Rs 54.2 per dollar
in December 2011
CRISIL EcoView
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Outlook
Although a mild recession in the first half of 2012 in
the Euro zone and recovery thereafter is now a possibility, given the forward-looking nature of
financial markets, we expect portfolio inflows to
recover somewhat by March 2012 relative to the
current levels. Therefore, CRISIL Research expects
the rupee to settle at around Rs 48 per dollar by end-
March 2012 and assigns a 50 per cent probability to
this event.
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19
Debt
The benchmark 10-year G-sec yields cooled slightly inDecember 2011 as against last month. This can be
attributed to the lower government borrowing and
repeated OMOs (open market operations - purchase of
government securities) undertaken by the RBI during
the month, which infused the required liquidity into the
system. The Government borrowed Rs 400 billion in
December 2011 as compared to Rs 520 billion in the
previous month via dated securities.
In December 2011, the government announced an
additional borrowing of Rs 400 billion via dated
securities, taking the total gross borrowing by the
government in this fiscal year to Rs 5.1 trillion on a gross
basis.
The yield on the benchmark 10-year paper stood at an
average of 8.7 per cent in December 2011. It reached
8.5 per cent during the month, the lowest since
September 2011. On a month-end basis, yields were
higher by 42 bps in
D e c e m b e r 2 0 1 1 a s
compared to November
2011. Yields of the short-term 1-year government
bond also showed a
similar trend and averaged at 8.6 per cent in December
2011, 29 bps lower than last month. Despite lowering
yields, the yield curve, defined as the spread between
the 10-year and 1-year bond yield, continued to become
flat. Net FII inflows to the tune of $4.2 billion into the debt
market were recorded in December 2011 in comparison
with $0.2 billion in November 2011. The spike in net FII
inflows into the debt market was because of the
increase in the FII investment limit in governmentsecurities to $15 billion as against $10 billion earlier.
Yield on the long-term 'AAA' corporate bonds dropped
during the reporting month. The corporate bond yield
came down to 9.4 per cent by end-December, from 9.7
per cent as of end-November 2011. The spread
between the 'AAA' corporate bond and the 10-year
government bond fell by 10 bps over November 2011
levels.
Source : CCIL
Figure 7.2: 10-year G-sec yields, year-end and month-end (%)
5.0
7.5
10.0
FY10 FY11
8.7
Dec Dec
7.8
FY11May
FY12
8.1
8.1
Source: FIMMDA
Figure 7.3: Risk Premia, year end & month end (%)
Spread between AAA corporate & 10-yr G-sec
0.0
1.0
2.0
FY10 FY11
1.21.1
0.9
0.7
Dec Dec
FY12
May
FY11
Outlook
The Government's borrowings from the market
during the second half of 2011-12 have now gone up
to Rs 2.6 trillion instead of the Rs 2.2 trillion
announced earlier. On the other hand, the RBI has
been undertaking OMOs to ease liquidity pressure
While the RBI is mulling over reversing its policy
stance, it has not made it clear about the timing of
such a move. Therefore, we expect the 10-year G-sec
yields to be around 8.5 per cent by March 2012.endYYield curve flattensfurther, in
December 2011
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Equity
The Indian equity markets surged during the first weekof December 2011 as global stocks climbed on a
renewed optimism that European officials were poised
to arrive at a solution to the economic crisis that is
wreaking havoc in the euro zone. Investors pumped in
money into the equity markets amidst India's weak
second-quarter GDP data and expectations of lower
inflation and that the Reserve Bank of India (RBI) may
pause its aggressive monetary stance to prop up
growth.
During the second week of the month, the markettumbled on concerns over the government's inability to
continue with policy reforms as it suspended plans to
allow foreign direct investment (FDI) in India's multi-
brand reta i l sector.
Conce rns ove r the
outcome of the European
Union's summit also
s p o o k e d i n v e s t o r s .
Though the US and the
European markets held up well in anticipation of a
positive outcome from the EU summit, the Indian
markets underperformed and ended the week on anegative note on the back of negative domestic news.
The Government's inability to implement the policy
reforms, high fiscal deficit and the cut in the GDP
forecast for 2011-12 increased concerns in the minds
of the investors. During the week ended December 16,
2011, the key benchmark indices fell and hit their
lowest level in more than 2 years after the RBI kept the
cash reserve ratio (CRR) unchanged, despite tight
liquidity in the system. Towards the end of December
2011, bearish sentiments gripped the market as the
investors' focus shifted towards the upcomingcorporate results for the third quarter.
The Sensex stood at 15454.9 as on December 30,
2011, down from 16123.5 a month ago and 20389.1 a
year ago. During the month, the benchmark index gave
negative monthly and yearly returns of 4.2 per cent and
19.9 per cent, respectively. Amidst the policy log-jam,
the valuation of Indian companies continued to suffer
with the P/E ratio falling to 16.9 in December 2011 from
17.6 in November 2011. NSE India VIX stood at 27.11
as on December 30, 2011, up from 25.02 at thebeginning of the month, hinting towards expectations of
increased volatility in the short term.
Net FII inflows during December 2011 turned positive
and stood at $4.2 billion, of which, there were nil net FII
inflows into the equity markets during the month. The
last month saw a net FII outflow of $0.6 billion. In
December 2011, S&P 500 yielded monthly and yearly
returns of 6.2 per cent and 0.1 per cent, respectively.
NIKKEI 225 gave negative returns of 17.0 per cent on a
yearly basis, but provided positive returns of 10.0 per
cent on a monthly basis.
Note : Returns are for the period of December 2011Source: NSE, BSE
Figure 7.4: Indian Equity Market Performance
Yearly returns Monthly returns
S&P CNX 500
CNX Mid Cap
S&P CNX Nifty
Sensex
-7.1
-5.7
-4.2
-22.5
-19.9
-19.9
-27.0
-4.4
Note : Returns are for the period of December 2011Source: Yahoo Finances
Figure 7.5: Global Equity Market Performance
Yearly returns Monthly returns
MSCI EME
S&P 500
MSCI WORLD
NIKKEI-225
0.1
-17.0
-7.1
6.2
-16.7
-1.0
1.8
10.0
PPolicy log-jamweighs down
market sentiment
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21
compared to an increase of 0.7 per cent in the second
quarter. During the same period, Non-residential fixed
investment increased by 15.7 per cent (up from 14.8 per
cent in the previous estimate) as compared to an
increase of 10.3 per cent in the second quarter. Real
federal government consumption expenditures and
gross investment rose by 2.1 per cent in the third
quarter.
According to the third estimate released by the Office for
National Statistics, UK's economy grew at 2.4 per cent inthe third quarter of 2011, up from 2.0 per cent as
estimated previously. The UK had recorded a similar
growth in the third quarter of 2010. The output of the
agriculture, forestry and fishing sector increased by 2.0
per cent in the third quarter of 2011 as compared with a
decrease of 4.4 per cent in the second quarter of 2011.
The output of the production industries rose by 0.8 per
cent in the third quarter of 2011. Output in the services
sector went up by 2.8 per cent in the third quarter of 2011
as compared to an increase of 0.4 per cent in the
previous quarter.
The second estimate released by Eurostat pegs the
Euro area growth at 0.8 per cent for the third quarter of
2011, unchanged from the flash estimate. Germany
grew at 2.0 per cent, France registered a growth of 1.6
per cent, the Spanish economy remained stagnant and
Portugal contracted by 1.6 per cent.
In recent months, the global economy has witnessed
further loss in growth momentum. Against the
background of heightened uncertainty and rising stress
in financial markets, the global business and consumer
sentiment has deteriorated further. These
developments have affected the positive impetus that
was visible due to the clearing of supply-chain
disruptions that had been triggered by the Japanese
earthquake. The recent moderation in growth should
help to alleviate overheating pressures in emerging
economies, while the advanced economies facesignificant structural headwinds.
The third estimate, released by the US Bureau of
Economic Analysis, pegs real GDP growth for the US at
1.8 per cent for the third quarter of 2011. US growth for
the third quarter of 2011
h a s b e e n r e v i s e d
downwards from 2.0 per
cent as pegged earlier by
the second estimate. The increase in real GDP primarily
reflects positive contributions from personalconsumption expenditure, non-residential fixed
investment, exports, and federal government spending.
But, they were partly offset by negative contributions
from private inventory investment and state and local
government spending. Real personal consumption
expenditures increased by 1.7 per cent (down from 2.3
per cent in the previous estimate) in the third quarter,
VIII. Global Economic Outlook
Source: Statistical Bureau, Respective Countries Note: * y-o-y %
Table 8.1: GDP Growth (q-o-q, annualised %)
Source: Statistical Bureau, Respective Countries
Table 8.2: Trade Balance (Billion, National Currency)
Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
United States -51.6 -44.8 -44.9 -44.2 -43.5
United Kingdom -4.5 -2.3 -2.7 -4.3 -1.6
Euro Area 0.1 2.5 -4.4 2.7 1.1
Japan 67.3 67.9 -779.6 293.9 -281.8
China (US$ billion) 22.3 31.5 17.8 14.5 17.0
-
-
-
-687.6
14.5
2010 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11
United States 2.9 2.6 3.1 1.9 1.3
United Kingdom 1.3 2.8 -2.0 2.0 0.4
Euro Area 1.7 1.2 1.2 2.5 0.8
Japan* 4.0 5.2 2.3 -1.0 -1.1
China* 10.3 10.7 10.4 9.7 9.6
1.8
2.4
0.8
-0.1
9.4
UUS growth reviseddownwards again
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CRISIL EcoView
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Among the Asian economies, China's GDP expanded at
9.4 per cent in the third quarter of 2011, down from 9.6
per cent during the second quarter of 2011. This is the
slowest pace of GDP growth in China since early 2009.
Japan's economic activity has been picking up, albeit
moderately mainly due to effects of a slowdown in the
overseas economies. Japan's economy showed some
improvement by contracting at only 0.1 per cent in the
third quarter of 2011. It had previously contracted at 1.1
per cent during the second quarter of 2011.
According to the US Census Bureau and the US Bureau
of Economic Analysis, exports for October 2011 stood at
$179.2 billion, while imports were at $222.6 billion. This
resulted in a goods and services deficit of $43.5 billion,
down from $44.2 billion (revised) in September 2011. In
October 2011, the goods deficit decreased by $0.7
billion from the September 2011 level, while the services
surplus remained virtually unchanged at $15.3 billion in
October. The fall in exports of goods reflected decreases
in industrial supplies and materials, consumer goods,
foods, feeds, beverages, automotive vehicles, parts,
and engines. Imports of capital goods, consumer goods,
foods, feeds, and beverages registered an increase.
With regard to services, increases in royalties andlicense fees and other private services (which include
items such as business, professional and technical
services, insurance services, and financial services)
were mostly offset by decreases in travel, other
transportation, and passenger fares.
The UK's deficit in trade in goods and services stood at
1.6 billion in October 2011 as compared to a deficit of
4.3 billion in September. The deficit in seasonally-
adjusted trade in goods was 7.6 billion in October 2011,
compared with the deficit of 10.2 billion in September
2011. The surplus in seasonally-adjusted trade in
services was estimated at 6.0 billion in October 2011,
compared with the surplus of 5.9 billion in September
2011. The increase in total exports was driven by higher
levels of exports of chemicals, medical products, capital,
telecommunications equipment and silver. Imports of oil
increased, while that of consumer goods registered a
decline.
In Japan, trade balance fell to a deficit of 687.6 billion in
November 2011 from a deficit of 281.8 billion last
month. Japan had posted a surplus of 293.9 billion in
September 2011. On a
monthly basis, Japanese
exports fell by 5.6 per
cent, but imports grew at
1.6 per cent in November
2011. China posted a surplus of $14.5 billion in
November 2011, down from a surplus of $17 billion in the
last month, but same as in September 2011. On a
monthly basis, China's exports and imports registered agrowth of 10.8 per cent and 13.9 per cent, respectively.
Eurostat's estimate for the Euro area's trade with the rest
of the world stood at a surplus of 1.1 billion in October
2011. In September 2011, the balance was 2.7 billion.
On a seasonally-adjusted basis, in October, exports fell
by 1.9 per cent and imports by 0.7 per cent, in
JJapan's trade deficitwidens sharply
Source: Statistical Bureau, Respective Countries
Table 8.3 Consumer Price Inflation (y-o-y %)
Nov-11Jun-11 Jul-11 Aug-11 Sep-11 Oct-11
United States 3.6 3.6 3.8 3.9 3.6
United Kingdom 4.2 4.4 4.5 5.2 5
Euro Area 2.7 2.5 2.5 3.0 3
Japan 0.2 0.2 0.2 0.1 -0.2
China 6.4 6.5 6.2 6.1 5.5
3.4
4.8
3.0
-0.5
4.2
Source: Statistical Bureau, Respective Countries
Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
United States 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25
United Kingdom 0.5 0.5 0.5 0.5 0.5
Euro Area 1.50 1.50 1.50 1.50 1.00
Japan 0.1 0.1 0.1 0.1 0.0
China 6.6 6.6 6.6 6.6 6.6
Dec-11
0.0-0.25
0.5
1.00
0.0
6.56
Table 8.4: Policy Interest Rate (End of Month %)
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comparison with September 2011.
According to the Bureau of Labour Statistics, inflation in
the US fell marginally to 3.4 per cent in November 2011
from 3.6 per cent in October 2011. The energy index
declined for the second month in a row. As in October
2011, the gasoline index fell sharply and the index for
household energy declined as well. The index for all
items (excluding food and energy) increased by 0.2 per
cent in November 2011, following an increase of 0.1 per
cent in the previous 2 months. The y-o-y change in the
food index also declined slightly, from 4.7 per cent in
October 2011 to 4.6 per cent in November 2011.
Inflation in the UK fell to 4.8 per cent in November 2011,
from 5.0 per cent in the last month. The downward
pressures to inflation came from food, petrol, clothing
and furniture, household equipment and maintenance.
But these were offset by upward pressures from
domestic heating and off sales of alcohol. Prices of food
and non-alcoholic beverages rose by 4.0 per cent. Gas
and electricity charges rose by 25.3 per cent and 15.5
per cent, respectively.
In November 2011, the Euro area's annual inflation was3.0 per cent. Inflation has stood at 3.0 per cent in the
Euro area since September 2011. The main
components with the highest inflation in November 2011
were transport, housing, alcohol and tobacco, while the
lowest inflation was observed in communications,
recreation, culture and education. As compared with
October 2011, annual inflation fell in fourteen member
m-o-m y-o-y
Wheat
Soya Oil*
Steel
Aluminium
-4.1
-4.5
-3.9
-8.3
-4.0
-13.6
-0.2
Source: Metal Bulletin, FAO *Note: Data is available only upto November 2011Source: Energy Information Administration
Figure 8.1: Europe Brent (US$ per barrel)
107.9
91.4
60.0
95.0