Bears circle India's slowing economy

Discussion in 'Economy & Infrastructure' started by Someoneforyou, Jul 13, 2011.

  1. Someoneforyou

    Someoneforyou Regular Member

    Jan 26, 2011
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    Bears circle India's slowing economy
    India - 10 July 2011

    Not long ago it was the toast of investors, but India's appeal has taken a hit, with bearish sentiment building thanks to worries over stubbornly high inflation and widespread political corruption.

    Investor ardour for Asia's third-largest economy has been cooled by a litany of bad news, from slowing growth, rising prices and spiralling interest rates to paralysis on economic reforms and a string of high-profile graft scandals.

    Last week, global business information agency Dun and Bradstreet reported that its India business optimism index had fallen by a hefty 22 percent quarter-on-quarter.

    "There has been a confluence of bad news dragging down sentiment," Kaushal Sampat, Dun and Bradstreet's India chief executive, told AFP.

    The bad news comes as the government battles multiple corruption scandals that forced the resignation of a second cabinet minister last week over accusations he abused his power while he held the telecom portfolio.

    "There are so many political fires, it makes it hard for the government to focus on the economic challenges such as reforms needed to spur growth," says Sampat.

    Data for the January to March quarter showed annual economic growth of 7.9 percent -- the slowest in five quarters. The key manufacturing sector grew by 5.5 percent, its weakest pace in 18 months.

    Quarterly net direct tax collections have fallen 17 percent year-on-year as economic activity decelerates.

    Economists blame the downturn on stubbornly high inflation, which 10 interest rate hikes since March 2010 have failed to tame. Price pressures are now spreading from food and energy to manufacturing.

    "The continual rise in credit costs and high inflation have hurt both investment and consumption," says Deepak Lalwani, head of London-based India-focused investment consultancy Lalcap.

    Factory output has slowed in both India and China, the fastest-growing major global economies, as central bankers have boosted lending rates to fight inflation.

    As one sign of waning investor appetite, funds raised through initial public offerings (IPOs) in India slumped by more than 80 percent year-on-year in the first half of the year to $780 million, according to global data supplier Dealogic.

    That compares with a rise in worldwide IPO fundraising by 14 percent in the same period to $114 billion, swelled by large US and Hong Kong listings.

    India's benchmark Sensex index has already fallen 8.5 percent this year, after rising 17 percent last year, making it one of the worst-performing globally.

    The forthcoming quarterly earnings season "will not be a pretty picture," says Apurva Shah, head of institutional equities at Mumbai brokerage Prabhudas Lilladher, blaming weakening consumer demand and higher borrowing costs.

    The government is expected to officially lower its growth forecast for 2011-12 in the coming days from nine percent to around eight to 8.5 percent -- still higher than most private economists' expectations.

    This week, international ratings agency Fitch cut its 2011 growth forecast for India's economy to 7.7 percent from 8.3 percent, citing inflation as a key concern.

    The economy is going through a "soft patch" that "could last a while", HDFC Bank chief economist Abheek Barua says.

    While growth of seven to eight percent would be envied by western economies, experts say India needs at least 10 percent expansion to lift hundreds of millions of Indians out of crushing poverty.

    And the slowdown is seen as unlikely to put an end to rate hikes, with economists predicting further increases in the coming months.

    The central bank has made it "crystal clear" it is "prepared to sacrifice some growth in the short term to protect the medium-term prospects of the economy," says Credit Suisse economist Robert Prior-Wandesforde, who projects growth of 7.5 percent for this year and next.

    Longer-term, economists say India's so-called "growth story" driven by its vast consumer market and service-led economy is still intact.

    But a lack of economic reforms is hampering the country's progress, and with the government careening from crisis to crisis, it is not expected to pass any important pro-market legislation.

    Economists have long prescribed reforms such as reducing government control, liberalising the financial sector, simplifying archaic tax laws and loosening labour market rules as key to boosting growth, creating jobs and alleviating poverty.

    "We are so close (to achieving double-digit growth)," says Dun and Bradstreet's Sampat.

    "If we had the right supportive economic ecosystem and big-ticket reforms, 10 percent growth would not have evaded us," he adds.

    "It's really disappointing."

    Source: AFP
  3. sob

    sob Moderator Moderator

    May 4, 2009
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    New Delhi
    The biggest problem apart from high inflation has been a drift in Governance. When corporates and big businesses sense uncertainty and clarity in policies, then flight of capital and downgrading of ratings is a natural phenomenon.

    The Posco deal, the Cairn Vedanata deal are all glaring symptoms of lack of cohesive decision making by the Govt. The economy is falling in a rut and herculean effort will be required by the Govt to get the economy going.
  4. thakur_ritesh

    thakur_ritesh Administrator Administrator

    Feb 19, 2009
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    Land of the GODS - "Dev Bhomi".
    like sunita narain the other day said, government is only fire fighting on one front then the other and there is an absolute lack of governance. ministers are more seen defending the government or making plans on how best to get out of one crunch situation then the other, it seems a never ending process.

    more than the governance it has been utter no show on the economic reforms process, it has been near three years when UPA-I won the vote of confidence post left withdrew the support on the indo-us nuke deal and post that the expectations were to only grow and reached a high once they got to form a government which had no left in it or the SP's, the BSP's, but the government comes across sleeping and doing nothing. the very basic reforms have been sidelined, and now over two years of UPA II have gone by, and once any government enters the fourth year of rule they get very conservative on further reforms because of political reasons, if anything these people have just another year to do something, but the way they are going ahead, or shall i say taking steps backwards, a lot of very crucial time is only being lost.

    like we need a strong second green revolution on the agri front, similarly this country requires a second wave of reforms, but its only getting disappointing by the day.

    the biggest worrying sign comes in the form of slow down in the economy with no let up on the inflation front, if we were to continue like this, it wont take us long to hit a road block which hurts real bad, and one is forced to say fitch is still brave enough to project 7.7% for this fiscal, but i guess they would have projected it with a downward trend.

    UPA II rule has been anything but governance, a case of what should not have been done, a case of lost opportunities!
  5. Dinku

    Dinku Regular Member

    Jul 11, 2011
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    how bear circle India?

    What bear do mit money?

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