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This publication was archived on 4 August 2016. This article is no longer current. Please refer to Overseas Business Risk - India
Monthly Economic Report November 2014 British High Commission New Delhi
Summary
GDP growth of 5.3% in Q2 2014-15. Fall in crude oil prices – welcome news for growth, trade and fiscal deficit (see special note)
GDP – Slowly turning around GDP growth in Q2 2014-15 was 5.3% (y/y) –
lower than 5.7% in Q1, but better performance
than this time last year. This brings average
growth in the first half of the current fiscal year
to 5.5%; markedly higher than 4.9% in H1 of
the previous year. As the graph shows, there is a
broad based improvement in the growth
scenario compared to a year back; notably in
industry and fixed investment. It is interesting
services have continued to grow at a healthy rate
of ~7% - primarily driven by a robust financial
sector and government spending. Manufacturing
growth remained tepid at 0.1% .
10%
H1 FY15 H1 FY14
8%
6%
4%
2%
0%
GDP Industry Services Pvt. Cons. Govt. Cons. Fixed Inv.
India’s oil relief – what goes up, must come down! Over the past six months, global crude oil prices have dipped by over 30%. Crude oil has always been the Indian economy’s Achilles’ heel. India imports 70% of its crude oil, which accounts for close to 40% of its total imports. For an economy that runs a trade deficit of almost 8% of GDP, the fall in global crude oil prices is positive news. However there are also other indirect effects on the economy – this note summarises what this could imply for growth, subsidy burden, and tax collection. GROWTH: Lower oil price implies lower inflationary pressures, and thus higher real disposable incomes and higher consumer demand. Firms also benefit from falling input costs. The improvement in the current account and fiscal deficits offers greater monetary and fiscal policy space to support growth. It is estimated that every $10 fall in oil price can potentially boost GDP growth by 0.1%. FISCAL: The government has historically subsidised fuel. The previous government did away with petrol subsidy, and the present government has completely deregulated diesel prices (LPG and kerosene still remain controlled). The government is also planning to use this opportunity to shore up revenues – exploiting the fall in retail prices and increased profitability of oil companies with hikes in excise duty on petrol and diesel. India has targeted 4.1% fiscal deficit this year, and the diesel deregulation gives it fiscal space worth 0.3% of GDP. Additionally every $10 fall in global oil prices improves the fiscal balance by 0.1% of GDP.
For further information contact: [email protected]
Monthly Economic Report November 2014 British High Commission New Delhi
Other short term indicators have been positive this month. The manufacturing Purchasing
Managers Index (PMI) rose to a near two year high in November to 53.3 compared to 51.6 in October
(a reading above 50 indicates likelihood of expansion). Auto sales have picked up, growing by 10% in
November after a disappointing run during the recent festive season. The auto market has seen a slew of
new car models– an indication in itself on returning confidence in the Indian consumer. Growth in the
eight ‘core’ infrastructure sectors recorded an impressive 6.3% (y/y) in October compared to 1.9% in
the previous month (and -0.6% in the same month previous year), driven by production of coal,
electricity and refinery products.
Central Bank: Cautiously optimistic
In its latest monetary policy review, the Reserve Bank of India (RBI) left the policy rate unchanged at an
elevated 8%. However it has lowered its inflation expectation to 6% in March 2015 from 7.8%
previously. The long term forecast has been reduced to 6% for January 2016 from the projection of 7%
previously. This forward guidance suggests that the RBI is softening its outlook and is readying the
market for a potential rate cut. However the RBI has warned that there could be risks of energy prices
rising again and shortfall in crop production (leading to shortage of supply and hence higher prices).
We also publish a monthly trade report. Our previous reports are accessible here.
Monthly Economic Report November 2014 British High Commission New Delhi
GROWTH: GDP growth 5.3% in Q2 2013-14
GDP Projects Under Implementation IIP/Capital/Consumer Goods
GDP Industry Services 18 IIP [Left] Capital goods Consumer goods
16
12 10 30
10 14
8 25
20 12
8
6
10
15
10 6 8
4
5
4
6
2 0
2 4 0
-5
0 2 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13Dec-13 Mar-14 Jun-14Sep-14 -10
Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 0 -2
-15
-2
Sep-11 May-12 Jan-13 Sep-13 May-14
-4
-20
INFLATION: October CPI inflation dips to 5.5%, touches historic low
Wholesale Price Index (% y/y) Food vs. Core Inflation (% y/y) Consumer Price Index (% y/y) 12
Food Inflation Core Inflation [Right] 12.0
10 25
9 11.0
20
8
10.0
8
7
15
6
9.0
6
5
10
8.0
4
4 7.0
5
3
2 2
6.0
0
1
0 Oct-11 Apr-12 Oct-12Apr-13Oct-13 Apr-14 Oct-14 5.0
Oct-09Jun-10Feb-11Oct-11Jun-12Feb-13Oct-13Jun-14 -5 0 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14
MARKETS: Sensex scales new heights
SENSEX USD/INR 10yr Govt. Securities yield (%) 31000 73 9.4
29000 9.2
27000 68 9.0
8.8
25000 63
8.6
8.4
23000
8.2
21000 58 8.0
19000 7.8
7.6
53
17000
7.4
15000 7.2
48
Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 7.0
Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14
EXTERNAL: FDI rises to $2.5bn in September 2014 FDI ($ Bn) FII ($ Bn)
4.5
10
4 8
3.5 6
3 4
2.5 2
2 0 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14
1.5 -2
1 -4
0.5 -6
-8 0
Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 -10
Current vs. Capital A/c ($ Bn)
Current account balance Capital Account Balance
40.0
30.0
20.0
10.0
0.0 Jun-08 Feb-09 Oct-09 Jun-10 Feb-11 Oct-11 Jun-12 Feb-13 Oct-13 Jun-14
-10.0
-20.0
-30.0
-40.0
TRADE: October trade deficit at $13.4bn; exports hit 7-month low
Export/Import Growth (% y/y) Imports- Oil and Non Oil (% y/y) Trade Balance ($ Bn) 30.0
Imports Exports Petroleum crude & products imports 0
Non-Oil items imports Oct-12 Jun-13 Feb-14 Oct-14 25.0
40
20.0 30
-5
15.0
10.0 20 -10
5.0
10
0.0
-15
-5.0Oct-12 Apr-13 Oct-13 Apr-14 Oct-1 0
-10.0 Oct-12Feb-13Jun-13Oct-13Feb-14Jun-14 Oct-14
-10
-20
-15.0
-20.0 -20
-25.0 -30 -25