Indicus Analytics, An Economics Research Firm

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The Emerging
Economy
– Monthly Newsletter from
Indicus Analytics
3rd July 2009

Indian Economy Next Quarter

Delayed monsoon spreads rapidly, MET deptt. hopes it will

hold-up.
Late monsoon and heat wave in June hits sowing for rice,
oilseeds and pulses – expect pressure on prices.
Growth heading upwards, monsoon and the US economy
could still be spoilers.
Government shows intention of reforms – implementation
and governance issues remain stumbling blocks.
Disinvestment is on the cards finally.
Fuel price hike with no debate augurs well for
deregulation.

India : Kal, aaj aur kal

The world is upbeat about India again. We are to be the

fastest growing economy in 2010 at 8%, says the World
Bank. So we finally get to beat China at the race, never
mind that China is way ahead of us in per capita income
and development indicators. In fact, this year, India is
projected to be the only major economy to show a
positive growth (2%) in steel consumption, according to
the World Steel Association.
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The Economic Survey 2008-09 also sees growth in the

6.5-7.5% range this year, assuming a normal monsoon
and a bottoming out of US recession by September. This is
in line with our growth estimate of 6.6% given a few
months earlier. Returning to the high growth path of
recent years however needs significant reforms, says the
Survey and presents a formidable wish-list of measures.
Suffice to say, this hope will not materialise in the near
future.

But talk aside, inability to deal with upcoming risks is a

serious failing of our policymakers. We had predicted, in
our May newsletter, that crude would move away from the
$ 40-50 range of the previous months into a higher range
of $60-70, as expectations of global recovery became
stronger. Crude did trade in this predicted range in the
month of June. While we are glad that the fuel price hike
took place this time with less fuss and without countless
EGoM meetings, the fact remains that this hike does not
cover the increase in petro costs fully.

This is just one of several sectors that require more

efficient utilisation of public and private resources through
free pricing combined with vouchers/entitlements to the
deserving households for kerosene and gas. The Budget
needs to focus on these issues as much as it does on
taxation and government investment.

Our overall take on the forthcoming budget is that Pranab

Mukherjee will not go in for another fiscal stimulus, but
will aim to contain the deficit to 6% or below. There will
be announcements of a new scheme or two, but their full
implementation will be staggered over a few years (e.g.
Food Security Act), ditto expansion of the social sector
plans already in motion. Some tweaking on taxes aside,
we think it would be too much to expect much beyond the
usual from this Budget.
Sumita Kale and Laveesh Bhandari
 Indicus Analytics, An Economics Research Firm
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Dr. Sumita Kale is Chief Economist, and Laveesh

Bhandari is Director, Indicus Analytics. They can be
contacted at sumita@indicus.net and laveesh@indicus.net

Economic Growth

IIP for April posted a positive growth of 1.4% over last

year, while there were significant upward revisions in
previous months estimates. March growth was revised
from –2.3% to –0.8% and there is still one more revision
to go for the final number for March.
January IIP growth was revised to a final positive 1.0%
from its first estimate of negative 0.5%.
Infrastructure sectors showed a subdued growth of 2.8%
in May compared to 3.1% last year. Good performance
from coal(10.2%) and cement (11.6%) boosted the index,
while crude oil and petroleum refinery products declined
by 4.3% each.
The Markit PMI survey showed a slight decline in the
manufacturing output index in June, but still at 55.34 was
above the threshold of 50 that separates expansion from
contraction.
Provisional estimates of electricity generation for the
month of June show growth at 8.11%, compared to
2.55% last year.
Media reports good auto sales with Maruti and Hero Honda
leading the growth as before with 22.5% and 23.7%
respectively. However, in June others like Yamaha,
Hyundai, Tata and Fiat reported positive growth in sales.
During May, revenue earning freight traffic carried by the
Railways increased by 2.54% over last year. Revenue
earnings rose by 2.34% in the period April-May over the
same period last year, while Net Tonne Kilometres rose by
3.61% during April-May.
Telecom subscribers increased by 11.44 million in May,
bringing tele-density to 38.88% in the country.
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Hiring according to the Naukri Jobspeak was lower in May

than in April, the index standing at 644 compared to 677
the previous month.
Delayed rains and heat have hit sowing for oilseeds and
pulses. Groundnut acreage sown was down 54.8% as on
June 19th, compared to last year, while Moong was down
35.2%.
Water level in reservoirs fell below the 10 year average in
March and reached alarming levels by June with lack of
rain. 11 reservoirs, primarily in Maharashtra and
Karnataka have no live storage.
Read:India’s growth engine gathers greater steam
Read:Two exceptions

Inflation

While provisional WPI inflation fell in the negative zone in

June, this was essentially due to the high base effect of
last June, when the fuel prices had been hiked in the first
week.
While upward revisions to the WPI estimates began for
February estimates, inflation for week ending 18th April
was revised from 0.57% to 1.62% while inflation for week
ending 24th April was revised from 0.7% to 1.75%.
Consumer price indices also registered an upswing for May
– CPI AL rose sharply by 7 points over April, bringing
inflation to 10.21% while CPI IW went up marginally to
register 8.63% inflation.
With crude oil prices moving into the 60+ range in June,
even touching $ 70 a barrel, domestic petrol and diesel
prices were raised from July 2 by Rs 4 and Rs 2
respectively.
The Centre raised the statutory minimum price for
sugarcane by 32% in the end of June, this should reflect
in higher prices of sugar at the wholesale and retail level.
FAO Food Price Index has fallen one third since last June
peak but oilseeds and sugar markets remain tight as
 Indicus Analytics, An Economics Research Firm
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production setbacks have raised prices since last

November.
Read: Certainly not deflation
Read: Commodity bubble would spark inflation: Assocham

Interest Rates
10 year benchmark gilt yields have been rising since the
end of April as the pressure of higher borrowings impacted
the market.
Government borrowing increased from the planned Rs.
241,000 crore for H1 2009-10, to Rs. 259,000 crore.
Going forward, the Budget on July 6th will determine
trends as the exact size of disinvestments and borrowings
for the year will be set out.
On the interest rate front, the RBI has been caught by
mixed signals coming in on the inflation and growth front
- CPI still registering high inflation, WPI showing low
levels but an uptrend, manufacturing off the negative path
but slow growth forecast ahead.
A rate cut by the RBI of 25-50 basis points in the July end
review could well signal the end to the rate cut cycle.

Read: RBI says reduction in interest rates a complex issue

Read: Government may borrow Rs. 40k crore more in
FY10

Exchange Rates

Exports fell by 29.2% in May compared to last year

(18.4% in Rupee terms), while imports fell by 39.2% in
dollar terms(30% in Rupee terms).
Oil imports were lower by 60.6% while non-oil imports
also registered a decline of 25.4% in May, reflected the
slowdown in the economy.
Trade deficit for April-May period was estimated at $ 10.2
billion, compared to $ 19.8 billion for the same period last
year.
 Indicus Analytics, An Economics Research Firm
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With decline in imports, the current account deficit moved

into surplus in the Jan-Mar quarter of this year, but stood
at $29.82 billion for 2008-09, 2.6% of GDP, compared to
$17.03 billion (1.5% of GDP) the previous year.
Balance of Payments situation improved in the Jan-Mar
quarter to show a small surplus of $ 300 million,
compared to the $17.88 billion deficit in the previous
quarter.
Total external debt stood at 2 229.9 million at the end of
March, compared to $230.85 billion at the end of
December.
Foreign portfolio investment has been flowing back since
mid-March, which has pushed the value of the rupee up.
It is now trading at 47.72 to a dollar, compared to the low
of 52.2 in early March.
Read: BRIC ambition to form a new world order
Read: Change the US can believe in
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