China’s economic slowdown will not affect India directly but the resultant global sluggishness may have a bearing on the Indian economy, a state-run thinktank here has said and called on the two Asian giants to work on “complementary approaches” to protect their interests. “The Chinese actions will affect the developed economies enormously, as has already been observed, but whether it grows fast or slow will not affect the Indian economy much,” Zhao Gancheng, Director of Shanghai Institutes for International Studies, said in an article in the state-run Global Times. Titled ‘Can India benefit from Chinese economic slowdown? Think twice,’ the article said the success of the Indian economy is more linked to internal factors. “The success of the Indian economy in the years ahead lies in a number of crucial elements, and the most important ones are likely the leadership’s policy options and internal interactions, which have so far not yet presented a very optimistic picture,” it said apparently referring to divisions between the government and the Opposition over key pending legislations on the GST and the land acquisition. “The Indian economy is full of potential, and how to make it become real growth tests the wisdom of leaders. When (Prime Minister Narendra) Modi was the Chief Minister of Gujarat, the state’s remarkable achievements were a proof of how important good policies are. “The Indian people chose Modi as their leader in the hope that the Gujarat model can be copied to the whole nation.”It said although Modi has been devoted to creating an FDI friendly environment in order to attract more investments, the results have not been as good as expected. “Local interests are difficult for the federal government to coordinate and address when implementing relevant policies,” it said. While China does not compete directly with India, the effect the world’s second largest economy has on the global economy is likely to influence the Indian economy, it said. In this regard, whether a slowing Chinese economy will really create more opportunities for the Indian economy needs rethinking, it said. “The key to understanding the situation is interactions between the global economy and the Indian economy. When the Indian economy developed very slowly, one of the reasons was the government’s choice to keep the Indian economy distant from the global economy. That was also the root cause for reform first in the early 1990s and now by Prime Minister Narendra Modi,” it said. “Thus, if the global economy slows down further as part of the results of Chinese economic restructuring, it would be difficult to see why a sluggish world economy would help the Indian economy anyway,” it said. “In fact, India’s growth rate of the second quarter this year has fallen to 7 per cent from 7.5 per cent of the first quarter, perhaps an indication of influence of the global decline. That is a warning sign that both China and India may have to work together to find complementary approaches for sake of their own interests,” it said.(PTI)
Read More
Prime Minister Narendra Modi on Tuesday (08 September) asked India Inc to increase risk-taking appetite and step up investments even as industry leaders pressed for interest rate cut and more policy action to improve ease of doing business. "Prime Minister has said that industry must take risk and increase investments...we must go out and invest. Industry has a role to play," CII president Sumit Mazumder told reporters after the meeting of Prime Minister with CEOs, bankers, economists and bureaucrats on the global economic slowdown. Several industry leaders meanwhile pitched for interest rate cut saying it would help them take risks and scale up investments. "Prime Minister said this is an opportunity for us to take advantage and invest...cost of capital is too high but I don't know how many people can go ahead to take risk and invest...many of us raised the issue of interest rate," Ficci president Jyotsna Suri said. Assocham president Rana Kapoor said that Prime Minister asked industry to "catalyse risk taking ability". He said the issue of capital requirement of banks to meet economic growth and the need to bifurcate bad assets of the banking system came up for discussion. As far as the Goods and Services Tax (GST) implementation is concerned, Finance Minister Arun Jaitley expressed hope that it would by rolled out, Mazumder said, adding the land bill did not come up for discussion. The industry leaders who attended the brain storming session with Modi on 'Recent global events: Opportunities for India' were Reliance Industries Chairman Mukesh Ambani, Tata Group head Cyrus P Mistry, Aditya Birla Group head Kumar Mangalam Birla, Sunil Bharti Mittal of Bharti Airtel and ITC chief Y C Deveshwar. Reserve Bank Governor Raghuram Rajan as well as Road Transport and Highway Minister Nitin Gadkari, Power Minister Piyush Goyal and Oil Minister Dharmendra Pradhan were also present. (Reuters)
Read More
Moody's Investors Service said India's current account deficit is likely to remain low supported by declining oil prices but a slow recovery in industrial output and investment would drag economic growth to 7 per cent in the current fiscal. Moody's also lowered growth forecasts for many Asia Pacific (APAC) sovereigns, citing that subdued global growth, exacerbated by weaker demand from China. "We have also reduced our projections for India to 7 per cent in 2015 and 7.5 per cent in 2016, from 7.5 per cent and 7.6 per cent based on high frequency indicators suggesting that the recovery in industrial output and investment is slow, and bank credit growth still subdued," it said. India's economy grew at 7 per cent in the June quarter of the current fiscal. The government expects economy to grow at 8-8.5 per cent in the fiscal ending March 2016. It said for a number of economies in the region, the fall in oil prices has helped to reduce current account deficits. Moody's said India's current account deficit (CAD) has narrowed significantly from 4.8 per cent in 2012 to 1.4 per cent in 2014. "We expect this trend to continue, supported by lower oil import costs." CAD is the difference between the inflow and outflow of foreign exchange. Oil prices have slumped by nearly 60 per cent over the past one year to around USD 45-46 per barrel, easing pressure on India's huge oil import bill. "The risk of a weaker monsoon and potential for higher food price inflation narrowed the scope for more significant monetary easing in the first half of the year. Nonetheless, our expectation is that despite its slower than anticipated pace, the direction of recovery is positive, which is reflected in our 2016 forecast," Moody's said. The RBI has lowered interest rates by 0.75 per cent in three tranches so far in 2015, but industry has been demanding more rate cuts in view of declining inflation and slow growth. In its report 'Asia Pacific Sovereigns: Credit Profiles Resilient to Slowing Exports, Subdued Domestic Demand', Moody's said weak demand from China has dampened the export outlook for the region, while softer commodity prices weigh on some sovereigns' export revenues, growth and fiscal balances. Moody's said low APAC growth forecasts for this year and next illustrates a weaker outlook in the region and in other parts of the world. "Our 2016 forecast for China is a shade lower at 6.3 per cent, down from 6.5 per cent. But the slowing is most marked elsewhere in emerging Asia. We now see APAC excluding China, India and Japan growing 3 per cent this year and 3.2 per cent next, down from our forecasts of 3.6 per cent and 4 per cent," it said. It said lower growth is negative, but sovereign credit quality remains intact and on average, it is still stronger than in most other regions and the risk of deflation is minimal.(PTI)
Read More
The latest Care Ratings survey on the Indian economy indicates that country's economic growth is likely to improve in the current fiscal with the majority pegging gross domestic product (GDP) growth between 7.5-7.9 per cent. Also, prospects of a rate cut by the Reserve Bank of India (RBI) are widespread with a majority expecting a 50 bps cut before the end of this fiscal. The central bank will review its monetary policy on September 29, but market analysts are betting on a rate cut before the scheduled policy. Indian growth slowed by more than expected in the quarter to June, a setback for Prime Minister Narendra Modi that will prompt more urgent calls from his aides for interest rate cuts. The latest data showed gross domestic product (GDP) expanded at an annual 7 per cent rate in the April-June quarter, matching China, but slower than provisional growth of 7.5 per cent in the previous quarter. The data will also strengthen the calls from Modi's government for a rate cut. According to media reports, some bureaucrats are already arguing for an immediate cut of as much as 50 basis points in the RBI's main 7.25 per cent policy rate. Many in the government are worried that growth could slip below the official target of 8 to 8.5 per cent for the year to March, and see the central bank's caution as worsening the situation. InflationAccording to the survey, although price levels could be pressured owing to domestic as well as global factors viz. sub-normal monsoons in the country and sudden increases in global commodity prices, the general perception appears to be that the increase in price levels would be more less than the increase recorded last fiscal owing to the subdued global commodity prices and domestic conditions. Retail inflation in FY15 came in at 5.9 per cent. A large number of respondents (59 per cent) do not expect inflation in FY16 to surpass 5.9 per cent. An overwhelming 83 per cent of the people predict a rate cut by the central bank in the coming months. RupeeThe exchange rate is expected to weaken from the current levels of Rs.63.4 to be in the range of Rs.64 -65.9/US dollar. The rupee is vulnerable to external factors, the most significant being the Federal Reserve's policy action on interest rates, the survey said. BanksThe banking sector is likely to be under pressure on the non-performing asset (NPA) front. The survey suggests that "banks are unlikely to get a respite from their stressed assets situation. Over half the respondents foresee an increase in the level of bank NPAs in FY16." Capital MarketA majority of the respondents (75 per cent) are of the view that the capital markets would witness an increase and the benchmark Sensex is expected to rule over the 27,000 levels this fiscal. Investment ClimateAs much as 85 per cent of respondents are convinced that overall investments in the country to improve in the current fiscal year. The survey findings reiterate the importance of the ease of doing business, the clearing of stalled projects and FDI for boosting investments. More than 60 per cent of the respondents find these measures of the government as being helpful in reviving domestic investments. The National Democratic Alliance government's foreign policy initiatives were being viewed as steps taken in the right direction. Corporate SectorAlthough the corporate sector is expected to clock better performance than that in FY15, the improvement this year is largely projected to be modest with a large section of the respondents (over 80 per cent) expecting both sales growth and net profit growth to be not more than 10 per cent. With the domestic demand yet to pick up and with global demand also being tempered, corporates are unlikely to see a jump in their sales. Corporates can however hope to get continued relief on the expenditure front from the moderation in inflation. In a nutshell, the survey indicates a mixed picture for the Indian economy in FY16. While on the one hand GDP is likely to see favourable growth, inflation expectations are subdued, but the capital markets are to be elevated. Investments too are expected to increase but the exchange rate is unlikely to see sharp depreciation. With private investments likely to seen only a marginal pick-up in the near term, the government will have to bear the responsibility of increasing investments and thereby create the critical link for private investments and economic growth. With indications of government spending in road and infrastructure, the investment cycle may be taken as being in the nascent stages of revival. Sustained increase in overall investment is contingent on growth inducing policy reforms.
Read More
Lloyd’s City Risk Index 2015-2025 presents the first ever analysis of economic output at risk (GDP at risk) in 301 major cities over a ten-year period While natural catastrophes such as extreme weather, pandemics and plant epidemics are going to put $98.1 billion of GDP at risk in ten Indian cities, manmade risks will account another $81.7 billion loss in the next decade, says a new study - the Lloyd’s City Risk Index. In total India’s ten largest centres of economic growth have $179.8 billion of GDP at risk from a series of threats over the next decade, according to new research for Lloyd’s, the specialist insurance market. The Lloyd’s City Risk Index, presents the first ever analysis of economic output at risk (GDP at risk) in 301 major cities from 18 manmade and natural threats over a ten-year period. Across the ten cities combined, the largest economic exposure is to pandemic risk, which could put $39.65 billion of GDP at risk, followed by flood at $33.84 billion, market crash at $21.13 billion, oil price spike at $20.81 billion and terrorism at $16.07 billion. The immense density of populations in urban areas, large numbers of people commuting and access to health services are significant contributing factors in the vulnerability to a pandemic. In India, the Index found the cities of Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kanpur, Kolkata, Mumbai, Pune and Surat together will generate an average annual GDP of $1.4 trillion in the coming decade. However, 12.6 per cent of this economic growth is at risk from the combination of 18 manmade and natural threats. Based on original research by the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School, the Index finds that a total of $4.6 trillion of projected GDP is at risk from manmade and natural disasters in these cities around the world. Lloyd’s has produced this Index to help increase the understanding of, and shape the world’s response to, the shifting risk landscape. The Index, which will be updated every two years, is aimed at stimulating further discussions between insurers, governments and businesses on the need to improve resilience mitigate risk and protect infrastructure. Mumbai has the largest total GDP at risk with a $47.38 billion risk exposure. Almost one quarter of the city’s potential losses are related to pandemic risk, followed by terrorism at 16.77 per cent, market crash at 12.94 per cent and flood at 12.89 per cent. Globally, Mumbai has the largest GDP exposure to terrorism in the Index at almost $8bn and the second highest exposure to power outage with $1.92 billion of GDP at risk. Globally, the Index identifies three important emerging trends in the global risk landscape:Emerging economies will shoulder two-thirds of risk related financial losses as a result of their accelerating economic growth, with their cities often highly exposed to single natural catastrophes.Manmade risks such as market crash, power outages and nuclear accidents are becoming increasingly significant, associated with almost half the total GDP at risk. A market crash is the greatest economic vulnerability – representing nearly a quarter of all cities’ potential losses. New or emerging risks, such as cyber-attack, are also increasingly significant. Together, they account for more than a third of the total GDP at risk with just four – cyber-attack, human pandemic, plant epidemic and solar storm – representing more than a fifth of the total GDP at risk. The findings show the need for governments and businesses to work together to build more resilient infrastructure and institutions. How quickly a city recovers after a catastrophe is a key component of the total risk, and the impact of events is mitigated by rapid access to capital to help restore the economy. Vincent Vandendael, Director of Global Markets, Lloyd’s said: “Lloyd’s City Risk Index highlights the economic exposure of 301 major cities across the world. Governments and businesses, together with insurers, must work together to ensure that this exposure – and the potential for losses – is reduced. Insurers, governments, businesses and communities need to think about how they can improve the resilience of infrastructure and institutions. Insurance is part of the solution. Insurers must continue to innovate; ensure their products are relevant in this rapidly changing risk landscape, offer customers the protection they need and, as a result, contribute to a more resilient international community.”
Read More
Near-term growth prospects remain favourable in India but some macroeconomic imbalances still exist, the International Monetary Fund (IMF) said on Thursday ahead of the meeting of finance ministers from G-20 countries in Turkey. "In India, while near-term growth prospects remain favourable and external vulnerabilities have decreased, some macroeconomic imbalances remain," IMF said in its report 'Global prospects and policy challenges' meant for the G-20 meeting of finance ministers in Ankara. "While the faster-than-expected fall in inflation has created space for considering modest cuts in the nominal policy rate, medium term inflationary pressures and upside risks to inflation remain," the report said. With balance sheet strains in the corporate and banking sectors, financial sector regulation in India should be enhanced, provisioning increased, and debt recovery strengthened, it said. According to the report, global growth in the first half of 2015 was lower than in the second half of 2014, reflecting a further slowdown in emerging economies and a weaker recovery in advanced economies. IMF said emerging market currencies have generally depreciated, reflecting weakening commodity prices, concerns about the growth transition in China, an increase in risk aversion and expectations of a lift-off in policy rates in the US. In contrast financial conditions in advanced economies continue to be easy. On the back of weak demand, safe real interest rates remain low, despite some widening of spreads, even as the policy rate lift-off approaches in the US. The growth in emerging economies has been slowing with marked differences across countries and regions, it said. "In India, domestic demand is accelerating, underpinned by the large positive terms of trade shock (mostly due to collapsing commodity-import prices)," the report said. Noting that the outlook for emerging economies has weakened in 2015 relative to last year, the report said in China, growth is expected to decline as excesses in real estate, credit, and investment continue to unwind, with a further moderation in investment growth, especially residential real estate. "In India, one of the world's largest commodity importers, growth will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices," the IMF said. "In India, the post-election recovery of confidence and lower oil prices offer an opportunity to pursue much-needed structural reforms," it said. According to the report, in many emerging economies policy space to support growth remains limited. (PTI)
Read More
The Indian auto industry is expected to grow as much as four times from its current value to hit Rs 18.9 trillion ($285 billion) by 2026, assuming the economy grows at 7.5 per cent over the next decade, a government report said on Wednesday (02 September). The report, published by the department of heavy industries, said the auto sector would account for more than 12 per cent of India's gross domestic product (GDP) and 40 per cent of its manufacturing sector by that date.(Reuters)
Read More
Government on Wednesday (02 September) flagged deflation as a new challenge for the economy but expressed hope that the growth will be close to 8 per cent in the current fiscal year, notwithstanding lower first quarter GDP number. "Overall, economic growth is moving in the right direction, although its pace is still below what the economy needs... but at a pace that is expected to pick up in response to the ongoing reforms." "And one real challenge that looms ahead appears not to be the price inflation but the possible price deflation," Chief Economic Advisor Arvind Subramanian said. Talking to the reporters on below-than-expected first quarter growth, he said, the numbers suggest that "economy is recovering" and is consistent with the other more high-frequency indicators such as revenue collection and real credit growth. On growth forecast, he said, "the Economic Survey said 8-8.5 per cent. Certainly if GDP numbers are reaccessed, we are closer to 8 per cent than currently being forecast." Several agencies including Fitch and other experts have lowered the growth forecast for the current fiscal in light of the global financial turmoil and the slowdown in pace of reforms. The first quarter GDP data released by the government on Monday revealed that the economic growth, measured by GVA slowed to 7.1 per cent as against 7.4 per cent in the corresponding period last fiscal. The GDP, though expanded at 7 per cent, up from 6.7 per cent. As regards to inflation, the wholesale price index has been in the negative zone since November 2014, while the retail inflation (CPI) too has fallen sharply. Subramanian, however, evaded questions on the need to cut rates by RBI to bolster economy in wake of low inflation. RBI Governor Raghuram Rajan, who had cut rates by 0.75 per cent in three tranches since January, maintained status quo in the last monetary policy review in August despite pressure from the industry and the government. The next policy is due on September 29.(PTI)
Read More
If the past is any yardstick to gauge the fate of the political parties in the fray, vote-banks will be divided on caste lines, writes D P Sharan The 2011 Census data on religious population is out but the census data on caste population has been withheld. This strategic development assumes greater significance in the light of its possible impact on the ensuing assembly elections in Bihar. Realities in the religious population Census are supposed to provide an impetus to the arduous efforts by parties in power at the Centre to take on the Opposition in the Bihar elections, while the denial to disclose the caste equation by releasing caste population Census data augurs well for forces aspiring to wrest power from the JDU-led coalition government in the state. The recent revelation by the 2011 Census data that the Muslim population had increased by 0.8 per cent in the country is potent enough to inflame opinions about its impact on the Bihar polls. Political pundits opine that the increase in the Muslim population amounts to a polarisation of the Hindu population. Although the BJP and its constituents — that are in power at the Centre — have never succeeded in roping in Muslims and they have no reason to feel elated about the growth of the Muslim population, they are believed to cash-in on the situation by polarising Hindu votes in the garb of protecting their interests against the sinister implications of the possible domination by Muslims. More, the saffron forces have the support from the mainly urban vote-banks that constitute the elite and are supposed to understand the permutation and combination of the situation. Incidentally, since the BJP and its constituents are accused of indulging in communal politics and not in caste-politics that has been the backbone of successive dispensations in Bihar, these political forces have been left with no option except to reap the utmost benefits of the polarization of Hindu votes that could come from the possible threat of the escalating influence of Muslim population in the country. The pertinent question, however, is whether the BJP would be able to polarise Hindu votes? Second, do the secular forces in Bihar not have enough reasons to celebrate the census figures? The answer to the BJP's ability to consolidate the Hindu vote-bank en bloc hangs in the balance. Contrary to the minority vote-banks including Muslims that often cast votes en bloc in favour of a particular political party or alliance of political parties, the Hindu vote-bank comprising different castes and creeds is bound to be divided on the question of exercising their franchise in favour of political parties in the fray. As such, much against the wishes of the BJP and its allies, the Hindu vote-bank is unlikely to shift en masse. On the other hand, the Muslim vote-bank prefers to remain with secular forces for obvious reasons. As per the official dossier, Muslims consist of 16 per cent of the total vote-bank while upper castes that consist of the urban vote bank is merely 10 per cent. Extreme Backward Castes — that do not include Yadav, Kurmi, Koeri, Baniya, etc.— make up 30 per cent while Kurmi is 2.4 per cent, Koeri is 4 per cent, Yadav is 11 per cent and ST is 1 per cent. If the past is any yardstick to gauge the fate of the political parties in the fray, barring Muslim votes, vote-banks will be divided on caste lines. Since the ruling JDU stalwart and the State Chief Minister, Nitish Kumar and RJD supremo and former Chief Minister, Lalu Yadav are supposed to be paramount leaders of the downtrodden population — that constitute by and large the entire non-upper castes and underprivileged class of society in the State - the maximum percentage of votes may turn in favour of non-NDA forces. To top it all, the past bears testimony to the fact that the BJP could have registered a galloping increase in its numerical strength in the State Assembly being in alliance with the JDU. As an alliance partner of JDU, it touched the figure of 91 by contesting a total 103 seats in 2010. Incidentally, the reasons behind such a major breakthrough by the BJP are believed to be mutual-distrust between the two mass leaders of the State, Nitish Kumar and Lalu Yadav rather than alliance with JD U. As such, issues of development, poverty, corruption, etc. are believed to be no longer major poll-planks to play key roles in the ensuing Assembly Elections in Bihar. Political parties -- aspiring to be in the fray -- aim at wooing voters on the basis of their clout among respective communities. As such, muscle and money power are supposed to play a major role in their attempts to make dents in each others' stronghold by different political parties, too.
Read More
Global economic growth is likely to be weaker than earlier expected, the head of the International Monetary Fund said on Tuesday (01 September), due to a slower recovery in advanced economies and a further slowdown in emerging nations. IMF Managing Director Christine Lagarde also warned emerging economies like Indonesia to "be vigilant for spillovers" from China's slowdown, tighter global financial conditions, and the prospects of a US interest rate hike. "Overall, we expect global growth to remain moderate and likely weaker than we anticipated last July," Lagarde told university students at the start of a two-day visit to Indonesia's capital. The IMF in July forecast global growth at 3.3 per cent this year, slightly below last year's 3.4 per cent. Lagarde said China's economy was slowing, although not sharply or unexpectedly, as it adjusts to a new growth model. "The transition to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy," she said. "That said, the authorities have the policy tools and financial buffers to manage this transition." Lagarde, who is visiting Indonesia for the first time in three years, said Southeast Asia's largest economy had the "right tools to actually react" to the global volatility. "You have very sound public finances with overall government debt in the range of twenty-ish percent relative to GDP, you have a relatively small deficit," she said before meeting with Indonesian President Joko Widodo.(Reuters)
Read More
