India moves close to China in growth rate
- Thread starter LETHALFORCE
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It was 300% during the times of 90% Income Tax slabs, now I reckon its closer to 30%.
With the coming of GST, the huge growth registered would initially be the massive disruption in the grey economy.
The Indian wealth primarily is their real estate. If that bubble crashes we will be screwed. Japan hasn't recovered from the real estate bubble crash.
An average middle class urban citizen of India is richer in assets than westerners.
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no smoking
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That is a BIG problem that you cannot earn enough money from international market!
As developing countries, both india and china need huge amount money to build their country-from infractructure to R&D. As poor country, there is no way you can raise your fund domestically. Without huge trade surplus, india has to borrow externallly. In general, these overseas money is far expensive than your domestic fund. That is why india cannot build its infrastructure at full speed--you don't have enough money.
That is an even bigger problem. Industrilization is a key step in country development. It can provide lots of knowledge and experience while nowhere else can. Actually, India already realise this problem and go back to develop manufacture. That is why indians stop talking about "knowledge economy".
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COLUMN - Economic malaise leaves India's rupee vulnerable
Wed Feb 13, 2013 9:39pm IST
(Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own)
By Neal Kimberley
LONDON (Reuters) - The Indian rupee may be poised to slide as economic data from Asia's third-largest economy disappoints and complicates central bank policymaking.
The rupee could easily fall to the 55.38 level against the dollar, last seen on January 8. Beyond that, dollar/rupee levels above 55.50, not seen since November, would beckon if any move gathered pace.
The overall economic outlook for India is not encouraging.
Industrial production unexpectedly shrank for a second successive month in December, hit by weak investment and consumer demand.
The index of industrial production fell 0.6 percent annually, the Central Statistics Office said.
The latest macroeconomic data provides little evidence of the economy picking up markedly in the short term, with India on course to end the 2012/13 fiscal year in March with its slowest growth in a decade at 5.0 percent.
Preliminary gross domestic product estimates showed India's annual growth would probably cool to 4.6 percent in the six months through March, down from 5.4 percent in the first half of the fiscal year.
That will only add to the pressure on Finance Minister P. Chidambaram's to unveil a growth-oriented budget on February 28.
But the minister's room for manoeuvre is limited as India already has a swollen fiscal deficit, which has put the country's investment grade credit rating at risk.
This "grim" fiscal deficit means it will be difficult to sustain spending in 2013/14, rural development minister Jairam Ramesh said on Monday.
The private sector may also be reluctant to pick up the investment baton.
India's rising trade deficit is also a problem.
The deficit for January was $20 billion, the second highest ever, piling pressure on a widening current account gap.
The central bank is worried that India's ability to fund the current account shortfall is becoming increasingly stretched, and could lead to fresh pressure on the rupee.
"We are financing our current account deficit through increasingly volatile flows," Reserve Bank governor Duvvuri Subbarao said on Monday.
The central bank's policy options are themselves arguably limited.
The Reserve Bank cut its benchmark interest by 25 basis points to 7.75 percent on January 29, but struck a cautious note on further easing given the current account deficit.
Given that India's consumer price inflation edged higher to 10.79 percent in January from 10.56 percent a month ago, data showed Tuesday, the central bank's note of caution may be have been doubly prescient.
The Indian rupee looks exposed.
(Editing by Nigel Stephenson)
Wed Feb 13, 2013 9:39pm IST
(Neal Kimberley is an FX market analyst for Reuters. The opinions expressed are his own)
By Neal Kimberley
LONDON (Reuters) - The Indian rupee may be poised to slide as economic data from Asia's third-largest economy disappoints and complicates central bank policymaking.
The rupee could easily fall to the 55.38 level against the dollar, last seen on January 8. Beyond that, dollar/rupee levels above 55.50, not seen since November, would beckon if any move gathered pace.
The overall economic outlook for India is not encouraging.
Industrial production unexpectedly shrank for a second successive month in December, hit by weak investment and consumer demand.
The index of industrial production fell 0.6 percent annually, the Central Statistics Office said.
The latest macroeconomic data provides little evidence of the economy picking up markedly in the short term, with India on course to end the 2012/13 fiscal year in March with its slowest growth in a decade at 5.0 percent.
Preliminary gross domestic product estimates showed India's annual growth would probably cool to 4.6 percent in the six months through March, down from 5.4 percent in the first half of the fiscal year.
That will only add to the pressure on Finance Minister P. Chidambaram's to unveil a growth-oriented budget on February 28.
But the minister's room for manoeuvre is limited as India already has a swollen fiscal deficit, which has put the country's investment grade credit rating at risk.
This "grim" fiscal deficit means it will be difficult to sustain spending in 2013/14, rural development minister Jairam Ramesh said on Monday.
The private sector may also be reluctant to pick up the investment baton.
India's rising trade deficit is also a problem.
The deficit for January was $20 billion, the second highest ever, piling pressure on a widening current account gap.
The central bank is worried that India's ability to fund the current account shortfall is becoming increasingly stretched, and could lead to fresh pressure on the rupee.
"We are financing our current account deficit through increasingly volatile flows," Reserve Bank governor Duvvuri Subbarao said on Monday.
The central bank's policy options are themselves arguably limited.
The Reserve Bank cut its benchmark interest by 25 basis points to 7.75 percent on January 29, but struck a cautious note on further easing given the current account deficit.
Given that India's consumer price inflation edged higher to 10.79 percent in January from 10.56 percent a month ago, data showed Tuesday, the central bank's note of caution may be have been doubly prescient.
The Indian rupee looks exposed.
(Editing by Nigel Stephenson)
Indian economy in a shambles Indian economy in a shambles
Tuesday, 12 February 2013 15:51 PNS | New Delhi / Mumbai
The Government's forecast of a mere 5 per cent rise in GDP this fiscal was fortified on Monday by two major indicators of economy. In the first major indicator domestic annual car sales are set to be in the negative territory for the first time in a decade. Automobile sector affects a big base of small and big ancillary industry in the country.
In another such indication, Reserve Bank Governor Duvvuri Subbarao warned that the country was headed for the highest ever current account deficit (CAD) this fiscal as the CAD rose to 5.3 per cent of GDP in the second quarter.
Completing the woeful economic scenario, he went on to add that inflation which had slowed down to a three-year low of 7.18 per cent in December 2012, is "still high". He painted the grim picture while addressing the convocation of the central bank-promoted Indira Gandhi Institute of Development Research in Mumbai.
"Last year, CAD was 4.2 per cent of GDP, but this year we expect it would be significantly higher than that. It's going to be historically the highest CAD measured as a proportion of GDP," the Governor said adding that it would not be a great worry if the widening CAD is on account of import of capital goods, but here it is high on account of import of oil and gold. The trade gap is widening mainly because of higher import of oil and gold. The third quarter numbers are expected later this week.
He also expressed concern over the way the CAD, which is the gap between forex gained and forex spent, is being financed by volatile inflows instead of more foreign direct investments.
High CAD and seriously slowing automobile sector suggest that the country is headed for a much more gloomy situation and the slump is yet to hit the bottom.
On inflation, he said, "if you take the macroeconomic context today, you find that growth has moderated, inflation has come off the peak, but even at 7 plus per cent, it is still high."
His comments on inflation gain greater significance as January figures on price rise expected later this week would form the basis for the mid-quarter review by RBI on March 19.
Subbarao said, "though it (inflation) has declined from peak, it still is above our comfort level," and pointed out that "structural and cyclical factors are driving the inflation."
"Crude oil and food inflation are driving inflation up. There is inflation from the high fiscal deficit as well apart from those coming in from demand pressures. How do we balance between declining growth and stubborn inflation? How do we calibrate the balance? That's a constant struggle in the Reserve Bank," the Governor said.
He said along with a deceleration in economic growth, investment has not only decelerated but also declined.
Subbarao addmitted that the RBI is faced with a dilemma in the inflation-growth paradox trade-off - striking a balance between growth and inflation.
The final word on the overall economic scenario was completed by the automobile industry body SIAM, which on Monday sounded the death knell for the sector.
SIAM said that its growth forecast of 0-1 per cent for this fiscal will not be met as gloomy macro- economic factors and negative sentiments continue to hit demand. The statement comes on the back of January numbers also showing a decline of 12.45 per cent, the third consecutive monthly decline since November last year.
According to its latest data, domestic passenger car sales declined to 1,73,420 units in January this year compared to 1,98,079 units in the same month of 2012. Tata Motors saw the steepest fall in sales while, with domestic sales crashed by 60.76 per cent.
In January SIAM had lowered car sales growth projection to just 0-1 per cent for this fiscal, from 1-3 per cent and 9-11 per cent announced in October and July, 2012 respectively. The last time car domestic sales witnessed a decline was in 2002-2003, when it dropped by 2.09 per cent, SIAM Director General Vishnu Mathur said.
"In the April-January period this fiscal, the domestic passenger car sales have declined by 1.8 per cent to 15,56,283 units compared to the year-ago period. The overall economic situation is low and the consumer sentiments are deeply negative despite the recent notional rate cuts by the RBI," Mathur said, adding even new model launches have not been able to have a major uplifting impact.
Mathur said the auto industry has put forward demands to the government to reduce excise duties on small cars to 10 per cent and big cars to 22 per cent in the upcoming Budget.
In January all the major car makers struggled to post good sales numbers. Market leader Maruti Suzuki India posted a marginal rise at 88,557 units from 88,377 units in the same month last year. Rival Hyundai Motor India Ltd had posted 1.45 per cent growth at 34,247 units as against 33,756 units last year, while Tata Motors' domestic sales crashed by 60.76 per cent to 11,192 units from 28,529 units in January last year.
However, motorcycle sales in January this year grew by 7.45 per cent to 8,86,527 units from 8,25,050 units in the same month of previous year. Market leader Hero MotoCorp (HMC) had posted sales of 4,94,109 units as against 4,66,110 units in the same month last year. Rival Bajaj Auto posted sales of 1,96,023 units as compared to 2,02,214 units in January last year, while that of Honda Motorcycle and Scooter India (HMSI) was at 1,05,968 units as compared to 68,212 units in the year-ago month.
Total two-wheeler sales in January 2013 increased by 8.46 per cent to 12,06,937 units from 11,12,767 units in the same period of previous year, SIAM said. Scooter sales were up by 12.24 per cent in January this year at 2,52,094 units as against 2,24,612 units in the same month last year.
During the month, market leader HMSI had scooter sales of 1,10,757 units as against 1,08,927 units last year, while that of HMC was at 53,732 units as against 39,239 units in the year-ago month.
Total sales of commercial vehicles during the period declined by 9.51 per cent to 63,218 units from 69,865 units in the year-ago period. Three-wheeler sales during January stood at 48,519 units as against 45,633 units last year, up 6.32 per cent.
"Usually, the commercial vehicles segment is an indicator of the health of the economy and the numbers in the segment clearly shows something is wrong in the economy," SIAM Deputy Director General Sugato Sen said.
SIAM said that total sale of vehicles across categories registered a growth of 5.31 per cent to 15,61,104 units in January 2013 as against 14,82,437 units in the same month of 2012.
Taking a cue from this, markets ended lower on Monday with the Sensex closing down 24 points at 19,460 and the Nifty down by six points to end at 5,898.
Indian economy in a shambles
Tuesday, 12 February 2013 15:51 PNS | New Delhi / Mumbai
The Government's forecast of a mere 5 per cent rise in GDP this fiscal was fortified on Monday by two major indicators of economy. In the first major indicator domestic annual car sales are set to be in the negative territory for the first time in a decade. Automobile sector affects a big base of small and big ancillary industry in the country.
In another such indication, Reserve Bank Governor Duvvuri Subbarao warned that the country was headed for the highest ever current account deficit (CAD) this fiscal as the CAD rose to 5.3 per cent of GDP in the second quarter.
Completing the woeful economic scenario, he went on to add that inflation which had slowed down to a three-year low of 7.18 per cent in December 2012, is "still high". He painted the grim picture while addressing the convocation of the central bank-promoted Indira Gandhi Institute of Development Research in Mumbai.
"Last year, CAD was 4.2 per cent of GDP, but this year we expect it would be significantly higher than that. It's going to be historically the highest CAD measured as a proportion of GDP," the Governor said adding that it would not be a great worry if the widening CAD is on account of import of capital goods, but here it is high on account of import of oil and gold. The trade gap is widening mainly because of higher import of oil and gold. The third quarter numbers are expected later this week.
He also expressed concern over the way the CAD, which is the gap between forex gained and forex spent, is being financed by volatile inflows instead of more foreign direct investments.
High CAD and seriously slowing automobile sector suggest that the country is headed for a much more gloomy situation and the slump is yet to hit the bottom.
On inflation, he said, "if you take the macroeconomic context today, you find that growth has moderated, inflation has come off the peak, but even at 7 plus per cent, it is still high."
His comments on inflation gain greater significance as January figures on price rise expected later this week would form the basis for the mid-quarter review by RBI on March 19.
Subbarao said, "though it (inflation) has declined from peak, it still is above our comfort level," and pointed out that "structural and cyclical factors are driving the inflation."
"Crude oil and food inflation are driving inflation up. There is inflation from the high fiscal deficit as well apart from those coming in from demand pressures. How do we balance between declining growth and stubborn inflation? How do we calibrate the balance? That's a constant struggle in the Reserve Bank," the Governor said.
He said along with a deceleration in economic growth, investment has not only decelerated but also declined.
Subbarao addmitted that the RBI is faced with a dilemma in the inflation-growth paradox trade-off - striking a balance between growth and inflation.
The final word on the overall economic scenario was completed by the automobile industry body SIAM, which on Monday sounded the death knell for the sector.
SIAM said that its growth forecast of 0-1 per cent for this fiscal will not be met as gloomy macro- economic factors and negative sentiments continue to hit demand. The statement comes on the back of January numbers also showing a decline of 12.45 per cent, the third consecutive monthly decline since November last year.
According to its latest data, domestic passenger car sales declined to 1,73,420 units in January this year compared to 1,98,079 units in the same month of 2012. Tata Motors saw the steepest fall in sales while, with domestic sales crashed by 60.76 per cent.
In January SIAM had lowered car sales growth projection to just 0-1 per cent for this fiscal, from 1-3 per cent and 9-11 per cent announced in October and July, 2012 respectively. The last time car domestic sales witnessed a decline was in 2002-2003, when it dropped by 2.09 per cent, SIAM Director General Vishnu Mathur said.
"In the April-January period this fiscal, the domestic passenger car sales have declined by 1.8 per cent to 15,56,283 units compared to the year-ago period. The overall economic situation is low and the consumer sentiments are deeply negative despite the recent notional rate cuts by the RBI," Mathur said, adding even new model launches have not been able to have a major uplifting impact.
Mathur said the auto industry has put forward demands to the government to reduce excise duties on small cars to 10 per cent and big cars to 22 per cent in the upcoming Budget.
In January all the major car makers struggled to post good sales numbers. Market leader Maruti Suzuki India posted a marginal rise at 88,557 units from 88,377 units in the same month last year. Rival Hyundai Motor India Ltd had posted 1.45 per cent growth at 34,247 units as against 33,756 units last year, while Tata Motors' domestic sales crashed by 60.76 per cent to 11,192 units from 28,529 units in January last year.
However, motorcycle sales in January this year grew by 7.45 per cent to 8,86,527 units from 8,25,050 units in the same month of previous year. Market leader Hero MotoCorp (HMC) had posted sales of 4,94,109 units as against 4,66,110 units in the same month last year. Rival Bajaj Auto posted sales of 1,96,023 units as compared to 2,02,214 units in January last year, while that of Honda Motorcycle and Scooter India (HMSI) was at 1,05,968 units as compared to 68,212 units in the year-ago month.
Total two-wheeler sales in January 2013 increased by 8.46 per cent to 12,06,937 units from 11,12,767 units in the same period of previous year, SIAM said. Scooter sales were up by 12.24 per cent in January this year at 2,52,094 units as against 2,24,612 units in the same month last year.
During the month, market leader HMSI had scooter sales of 1,10,757 units as against 1,08,927 units last year, while that of HMC was at 53,732 units as against 39,239 units in the year-ago month.
Total sales of commercial vehicles during the period declined by 9.51 per cent to 63,218 units from 69,865 units in the year-ago period. Three-wheeler sales during January stood at 48,519 units as against 45,633 units last year, up 6.32 per cent.
"Usually, the commercial vehicles segment is an indicator of the health of the economy and the numbers in the segment clearly shows something is wrong in the economy," SIAM Deputy Director General Sugato Sen said.
SIAM said that total sale of vehicles across categories registered a growth of 5.31 per cent to 15,61,104 units in January 2013 as against 14,82,437 units in the same month of 2012.
Taking a cue from this, markets ended lower on Monday with the Sensex closing down 24 points at 19,460 and the Nifty down by six points to end at 5,898.
Indian economy in a shambles
Indian economy in worsening straits
By Kunal Kumar Kundu
On February 7, India's Central Statistical Organization (CSO) released its advance estimate of India's national income for 2012-13. Coming from a government agency, it was a shocker, as it now expects India's income side gross domestic product (or GDP at factor cost, ie GDPfc) to grow by a mere 5%, much lower than the market expectation of 5.5% and among the lowest ever expected for the current and the least over the past 10 years.
What this means is that the second half of the financial year that ends in March 2013 will see the growth rate come down to approximately 4.6%, down from 5.4% during the first half.
In sectoral terms, agriculture growth is likely to have plummeted to 1.8% compared with 3.6% in the previous financial year. This is not a surprise given the impact of drought. Growth rate of industry as a whole is expected to be 2%, down from 2.7% recorded a year earlier. This was mainly because of a sharp deceleration of manufacturing which is likely to have grown by 1.9%, compared with 2.7% during FY12. This is not entirely unexpected given the evidence of sharp demand destruction that has taken place. Also mining, which contracted during FY12 (-0.6%), seems to have barely managed to grow (0.4%).
It was the performance of the services sector, however, that is a major cause for concern. As per the advance estimate, the service sector (which accounts for about 67% of the GDP) growth rate may have slipped to as low as 6.5% (the lowest in 12 years) as against 7.9% growth during FY12. Even this low growth got a boost by a possible 6.8% rise in community and social services (6% in FY12) as the government's social sector expenditure is seemingly on the rise.
With domestic demand falling, the expenditure side GDP (or GDP at market price or GDPmp) is expected to have grown by a mere 3.3% in FY13, virtually half the growth rate of FY12 (6.3%). The persistent slowdown in investment is reflected in the likely sharp fall in growth rate of Gross Fixed Capital Formation (GFCF) to 2.5% from 4.4% in FY12.
Clearly, the slowdown in investment spending has gathered momentum that cannot be reversed easily. By March this year, India's 12th Five Year Plan will complete its first anniversary without any perceptible increase in government spending on infrastructure. Given the pressure on finances and the tendency of every government to cut down on capital expenditure every time the deficit situation becomes unmanageable, public spending on infrastructure will likely lag behind. With private investment not materializing, this will prevent the economy from growing faster going forward.
However, the advance estimate data may yet be suspect, given the sharp difference between GDPfc and GDPmp. At 1.6%, this is the second-highest difference in the growth rate between these two measures. The government as well as some analysts believes that the advance estimate is biased on the downside as it fails to reflect some recent uptick in activity. To an extent, they maybe correct.
In fact, the FY12 advance estimate pegged the GDP growth rate to 6.9%, having failed to reflect the falling level of activity then. The growth rate was subsequently revised downward to 6.5% (after the full-year data was first released) and subsequently to 6.2% during the first revised estimate released last week.
Therefore, while there is some merit in the argument, the possible upward revision may not be as high as 5.5% as the government is expecting because the advance estimate does not take into account the possible compression of government expenditure that India's finance minister has recently announced, faced as he is with the stark reality of a high and rising fiscal deficit. Hence, the expected 6.8% growth in social sector may yet be lower.
Also, with the December 2012 industrial production data showing yet another contraction (down by 0.6%) following a 0.8% contraction in November, the government's optimism of uptick seems to be unwarranted.
This data also confirms that, like last year, the high twin deficit (fiscal deficit and current account deficit) will continue to challenge India. While subsidies continues to rise, lower demand (both domestic and external) has impacted collection of indirect tax.
As a result, total indirect tax (net of subsidies) is estimated to have contracted by nearly 19% this year, the second-highest contraction ever, following a contraction of 27.3% during 2008-09, when India embarked on a fiscal stimulation drive (reducing rates of indirect taxes while continuing to spend heavily on social sector) to perk up the economy after the global crisis blew up.
India's fiscal deficit, therefore, is unlikely to remain contained within the revised target of 5.3% of GDP, as GDP itself is likely to be lower than expected while some proposed spending cuts might not materialize.
The bigger threat, of course is the current account deficit (CAD). Reserve Bank of India data show that for the quarter ending September, the current account deficit touched US$22.3 billion (amounting to 5.4% of GDP, the highest recorded), up from US$16.4 billion the quarter before.
This has been caused by sharp deterioration in trade balance despite falling imports as exports contracted even sharper. If the monthly trade balance data is any indicator, the deficit will likely be even higher during the December ending quarter.
Another worrying aspect is the likely fall in the savings rate.
As per the available data, the savings rate during FY12 fell to 30.8% of GDP from 34% the year before. During the current year, given that private domestic consumption increased by 4.1% (albeit at the slowest pace since FY03) as compared to FY12 in the face of persistently high inflation, the savings rate might well drop below 30% of GDP during the current year.
In simple economic terms, current account deficit goes up if an economy invests more than what it saves domestically. For India, the deficit has been rising despite falling investment since savings has fallen even further, resulting in rising CAD.
The advance estimate, therefore, portends ominous signal. While the economy may have bottomed out, faster rebound ought not to be expected.
Kunal Kumar Kundu is a New Delhi based economist.
Asia Times Online :: South Asia news, business and economy from India and Pakistan
By Kunal Kumar Kundu
On February 7, India's Central Statistical Organization (CSO) released its advance estimate of India's national income for 2012-13. Coming from a government agency, it was a shocker, as it now expects India's income side gross domestic product (or GDP at factor cost, ie GDPfc) to grow by a mere 5%, much lower than the market expectation of 5.5% and among the lowest ever expected for the current and the least over the past 10 years.
What this means is that the second half of the financial year that ends in March 2013 will see the growth rate come down to approximately 4.6%, down from 5.4% during the first half.
In sectoral terms, agriculture growth is likely to have plummeted to 1.8% compared with 3.6% in the previous financial year. This is not a surprise given the impact of drought. Growth rate of industry as a whole is expected to be 2%, down from 2.7% recorded a year earlier. This was mainly because of a sharp deceleration of manufacturing which is likely to have grown by 1.9%, compared with 2.7% during FY12. This is not entirely unexpected given the evidence of sharp demand destruction that has taken place. Also mining, which contracted during FY12 (-0.6%), seems to have barely managed to grow (0.4%).
It was the performance of the services sector, however, that is a major cause for concern. As per the advance estimate, the service sector (which accounts for about 67% of the GDP) growth rate may have slipped to as low as 6.5% (the lowest in 12 years) as against 7.9% growth during FY12. Even this low growth got a boost by a possible 6.8% rise in community and social services (6% in FY12) as the government's social sector expenditure is seemingly on the rise.
With domestic demand falling, the expenditure side GDP (or GDP at market price or GDPmp) is expected to have grown by a mere 3.3% in FY13, virtually half the growth rate of FY12 (6.3%). The persistent slowdown in investment is reflected in the likely sharp fall in growth rate of Gross Fixed Capital Formation (GFCF) to 2.5% from 4.4% in FY12.
Clearly, the slowdown in investment spending has gathered momentum that cannot be reversed easily. By March this year, India's 12th Five Year Plan will complete its first anniversary without any perceptible increase in government spending on infrastructure. Given the pressure on finances and the tendency of every government to cut down on capital expenditure every time the deficit situation becomes unmanageable, public spending on infrastructure will likely lag behind. With private investment not materializing, this will prevent the economy from growing faster going forward.
However, the advance estimate data may yet be suspect, given the sharp difference between GDPfc and GDPmp. At 1.6%, this is the second-highest difference in the growth rate between these two measures. The government as well as some analysts believes that the advance estimate is biased on the downside as it fails to reflect some recent uptick in activity. To an extent, they maybe correct.
In fact, the FY12 advance estimate pegged the GDP growth rate to 6.9%, having failed to reflect the falling level of activity then. The growth rate was subsequently revised downward to 6.5% (after the full-year data was first released) and subsequently to 6.2% during the first revised estimate released last week.
Therefore, while there is some merit in the argument, the possible upward revision may not be as high as 5.5% as the government is expecting because the advance estimate does not take into account the possible compression of government expenditure that India's finance minister has recently announced, faced as he is with the stark reality of a high and rising fiscal deficit. Hence, the expected 6.8% growth in social sector may yet be lower.
Also, with the December 2012 industrial production data showing yet another contraction (down by 0.6%) following a 0.8% contraction in November, the government's optimism of uptick seems to be unwarranted.
This data also confirms that, like last year, the high twin deficit (fiscal deficit and current account deficit) will continue to challenge India. While subsidies continues to rise, lower demand (both domestic and external) has impacted collection of indirect tax.
As a result, total indirect tax (net of subsidies) is estimated to have contracted by nearly 19% this year, the second-highest contraction ever, following a contraction of 27.3% during 2008-09, when India embarked on a fiscal stimulation drive (reducing rates of indirect taxes while continuing to spend heavily on social sector) to perk up the economy after the global crisis blew up.
India's fiscal deficit, therefore, is unlikely to remain contained within the revised target of 5.3% of GDP, as GDP itself is likely to be lower than expected while some proposed spending cuts might not materialize.
The bigger threat, of course is the current account deficit (CAD). Reserve Bank of India data show that for the quarter ending September, the current account deficit touched US$22.3 billion (amounting to 5.4% of GDP, the highest recorded), up from US$16.4 billion the quarter before.
This has been caused by sharp deterioration in trade balance despite falling imports as exports contracted even sharper. If the monthly trade balance data is any indicator, the deficit will likely be even higher during the December ending quarter.
Another worrying aspect is the likely fall in the savings rate.
As per the available data, the savings rate during FY12 fell to 30.8% of GDP from 34% the year before. During the current year, given that private domestic consumption increased by 4.1% (albeit at the slowest pace since FY03) as compared to FY12 in the face of persistently high inflation, the savings rate might well drop below 30% of GDP during the current year.
In simple economic terms, current account deficit goes up if an economy invests more than what it saves domestically. For India, the deficit has been rising despite falling investment since savings has fallen even further, resulting in rising CAD.
The advance estimate, therefore, portends ominous signal. While the economy may have bottomed out, faster rebound ought not to be expected.
Kunal Kumar Kundu is a New Delhi based economist.
Asia Times Online :: South Asia news, business and economy from India and Pakistan
So you still buy the story that China's economy is export driven?
If true, why is it that China has performed much better than India has when both face the same difficult external conditions?
If true, why is it that China's economy has turned for the better while the latest slew of data from India paint a darkening picture for the latter?
What's important is not the scale of export but the net of export less import, which in China's case accounts for just 2% of its GDP in 2012.
It is time to unravel the myth that China's economy is export dependent!
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