Manufacturing sector grew at a slower pace in August as order flow turned sluggish and forced the companies to cut prices, a business survey showed on Tuesday (01 September), adding to the clamour for interest rate cut by RBI. The Nikkei India Manufacturing PMI — a composite monthly indicator of manufacturing performance — stood at 52.3 in August, down from a six-month high figure of 52.7 in July, indicating a slower pace of growth in the sector. A figure above 50 represents expansion while one below means contraction. A sharp increase in buying levels along with drop in stocks of finished goods, however indicated that output growth may rebound in the coming months. “Growth of Indian Manufacturing production waned in August on the back of softer improvements in both domestic and foreign demand. This led firms to keep payroll numbers unchanged during the month,” said Pollyanna De Lima, Economist at Markit, which compiled the survey. On inflation, the survey found that falling global commodity prices resulted in an overall reduction in cost burdens and this would provide companies with more room for price negotiations. “As inflation concerns fade and demand growth loses momentum, further accommodative policy should not be discounted,” Lima added. RBI Governor Raghuram Rajan, who has been under pressure from the government and the industry to further cut rates, said this weekend that RBI remains in an “accommodative mode” and would take a decision as per the data on inflation and other macroeconomic factors. RBI, which has lowered rates thrice so far this year by 25 basis points each, is scheduled to hold its next bi-monthly monetary policy review on September 29. However, two of the three rate cuts this year have been announced outside the scheduled reviews. The GDP data released yesterday by the government also showed the growth rate slipping to 7 per cent in the April-June quarter, from 7.5 per cent in the preceding quarter. Besides, the infrastructure sector output growth also slowed down to a three-month low of 1.1 per cent in July, further making case for a rate cut by RBI.(PTI)
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Defying weakness in developed countries and elsewhere in emerging Asia, India's economy expanded 7 per cent in the April-through-June quarter against 6.7 per cent a year ago, on a par with rival China's growth rate.India remained a rare bright spot in the world economy, doing better than trouble spots such as Brazil, Russia and South Africa. Asia's third-largest economy also continued to distinguish itself from its neighbours by being fuelled not by investments or exports but by consumer spending, which grew 7.4 per cent year-on-year. Indians are spending despite a withering of demand in other large economies, which has crushed trade and production growth around the globe. While doubts still persist over India's new way of calculating GDP, even though the method gained an endorsement from the World Bank's chief economist, there is no denying the fact that the economy is still struggling to gather steam. "Overall the message is that growth is still weak," Prasanna Ananthasubramanian, chief economist at ICICI Securities Primary Dealership, told Bloomberg. As China's economy stumbles, Union finance minister Arun Jaitley portrayed India as a new engine to power the world economy, while Niti Aayog chairman Arvind Panagariya said the scope for India to capture export markets from China was "potentially huge". Not all are taking India's rosy recent output data at face value, however. Quite a few columnists and media commentators are of the view that the latest figures indicated the Narendra Modi-led National Democratic Alliance (NDA) government's attempts to revive Asia's third largest economy were faltering. In May 2014, Narendra Modi swept to power on an assurance to reform and revive the economy to help provide millions of jobs for the burgeoning population of young adults. But many of Modi's key economic programmes including the goods and services tax (GST) have stalled in the Rajya Sabha where the NDA lacks a majority. But just 15 months after that grand electoral victory, disenchantment has set in. Businesses as well as young Indians are getting restless with slow progress on the ground. On Sunday, Modi also announced he was abandoning land reforms aimed at speeding up stalled multi-billion dollar infrastructure and other development projects, after the Congress vehemently opposed it in Parliament. Economist Ashoka Mody, in a blog for Bruegel, a European think-tank, is more sarcastic, criticising Indian official statisticians for controversial data that have "created the dangerous illusion that Indian GDP is growing rapidly when all indicators point to the contrary". The prolonged slump in corporate earnings would make it tougher the government to hold to its plan to accelerate economic growth to over 8 per cent in the fiscal year ending March 2016. The collective net profit of 80 Indian companies, each with a market value of more than $100 million, fell 8 per cent in the April-June quarter, year-on-year, according to Thomson Reuters data. Mody adds: "The illusion that India actually benefits from the recent turmoil - because, for example, oil prices are low - ignores that fact that prices are low because the global economy is so weak. The pervasive global weakness ultimately does the greater harm, especially because India is not competitive." "India can't be the jewel in the crown simply because China is doing poorly," Rajeev Malik, senior economist at broker CLSA, told the Financial Times. "Given the huge differences in per capita GDP, India will be growing faster than China. But that should not be confused to mean that India's clout all of sudden is going to be greater than China's." In the present economic scenario, India does indeed enjoy occasions arising from China's woes and the external economic condition, but will not be able to take advantage of them unless it quickly tackles its own domestic challenges.
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The rescue of India's economy may come down to the spending power of people like 26-year-old Avni Rambhiya. A financial analyst, she recently received a pay rise, is eating out more often and has stopped bringing home-cooked meals to the office in a tiffin, the traditional Indian lunchbox. "Our salary increases have been on an average 10 to 12 per cent...," the 26-year-old said. "I am left with some additional money in my hand even after saving, so I spend it in eating out more frequently, travelling, buying dresses." "Now four days a week I eat out either by ordering food or go out for dinner with friends. Even six months back I used to carry a tiffin to the office and eat out once in a quarter." People like Rambhiya offer a glimmer of hope for the Indian economy, which grew at a slower-than-expected annual rate of 7 per cent in the June quarter. The economic data, released on Monday, showed a weakening services sector, consistent with a pattern of subdued consumption over the past two years, but some leading indicators have already begun to tell a different story. From rising retail loans to a pick-up in movie ticket sales, there are early signs of a recovery in spending in Asia's third-largest economy. "The headwinds of 2013 that pushed down consumer spending have turned positive now," said Siddhartha Sanyal, India economist at Barclays in Mumbai. "Prices of commodities, interest rates, inflation are easing, growth sentiment which affects consumer behaviour is better, and the rupee is also relatively stable." Consumers have a strong influence on the Indian economy, but their confidence has been undermined by two straight years of sub-5 per cent economic growth - far too slow to generate enough jobs for an ever-expanding workforce. Economists say consumption is finally picking up, thanks to a plunge in oil prices, record low inflation and interest rate cuts totalling three quarters of a percentage point this year. Now with India's festive season starting this month, with the first of a series of religious holidays, economists say the time is ripe for Indians to spend more freely. India has no reliable indicator on retail sales because a lot of transactions are carried out in the black economy and are never reported to authorities, but retail loans - a proxy indicator - grew 15.3 per cent in June from a year earlier, outpacing overall credit growth of 12.8 per cent. Production of consumer goods grew 6.6 per cent in the same month, the strongest growth since October 2012, according to official industrial production data. A survey by the Reserve Bank of India (RBI) showed more than 87 per cent of consumers spent more in the June quarter than in the previous quarter and 86 per cent expected to spend more in the year ahead. Adding to the optimism, the government is expected to announce this year salary hikes for more than 10 million state employees and pensioners. Still, the early signs of a pick-up in consumption are restricted to the small, impulse purchases of daily life, from movie tickets and eating out to travelling and hair salons. Indian households are still cautious about bigger purchases, such as expensive large home appliances and cars. Makers of autos or refrigerators saw June quarter earnings fall 30.3 per cent from a year earlier, according to consumer discretionary data by Thomson Reuters. By contrast, cinema operator PVR Ltd enjoyed its best-ever month in July with 7.5 million spectators. And to take advantage of increasing concession stands, it has for the first time hired corporate chefs to expand its menu offerings to items such as pasta, grilled chicken, and gourmet coffee. "People are opening up their pocketbooks and enjoying more films and eating more," said PVR Cinemas chief executive Gautam Dutta. "We're seeing a huge amount of hope when we measure people's sentiment."(Reuters)
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Indian manufacturing growth eased in August as the pace of orders softened, forcing factories to cut selling prices at the fastest rate in more than six years, a business survey showed on Tuesday (1 September).Falling factory-gate prices are likely to filter into India's wider inflation rate, already at a record low of 3.78 per cent in July, giving the Reserve Bank of India room to cut interest rates again, possibly as early as this month."As inflation concerns fade and demand growth loses momentum, further accommodative policy should not be discounted," said Pollyanna De Lima, economist at Markit.A Reuters poll on Friday showed economists see a 60 per cent chance of policy easing at the RBI's 29 September meeting.The Nikkei India Manufacturing Purchasing Managers' Index, compiled by Markit, fell to 52.3 in August from July's 52.7. A reading above 50 indicates expansion.Output and orders also continued to grow, but at a somewhat slower pace."Growth of Indian manufacturing production waned in August on the back of softer improvements in both domestic and foreign demand. This led firms to keep payroll numbers unchanged during month," De Lima said.The new orders sub-index slipped to 53.6 from 54.0 in July.The slowdown comes despite manufacturers making the steepest cuts to prices since early 2009, as input costs fell for the first time in six months. Already weak commodity prices took a fresh tumble in recent weeks on fears that China's economy may be cooling more sharply than expected.There was also a record fall in the stocks of finished goods, dropping to its lowest level since the survey began in April 2005, possibly giving factories scope to build up inventories this month, using up spare capacity.Data late on Monday showed India's economy grew more slowly 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.Gross domestic product 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.While doubts still persist over India's new way of calculating GDP, there is no denying the fact that the economy is still struggling to gather steam.(Reuters)
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India on Monday (31 August) pitched for rating upgrade by Standard and Poor’s citing strong macroeconomic indicators, low inflation and improvement in fiscal as well as current account deficits. In his presentation to the visiting S&P officials, Chief Economic Advisor (CEA) Arvind Subramanian said that country has strong medium-term growth potential on back of persistent economic reforms which are being pursued by the government. S&P has BBB- rating on India with stable outlook. According to the sources, Subramanian also expressed the government’s commitment to implement the Goods and Services Tax (GST) bill and said that country’s growth in the current fiscal was expected to improve to around 8 per cent.'Subramanian based his optimism for higher growth on macroeconomic stability, better-than-expected monsoon and cumulative effect of reforms.S&P, according to sources, inquired about time line for implementing the GST bill and also plans for setting up a holding company to deal with the problem of stressed assets in the banking sector. Banking secretary Hasmukh Adhia, who has been appointed as the revenue secretary, in his presentation highlighted the steps taken by the government to enhance governance reforms and encourage accountability. Adhia is reported to have told the S&P officials that ARCs were functioning and there was no need for setting up a holding company to deal with the problem of stressed assets. He also spoke about the government’s plan to infuse fresh capital in the state-owned banks and added there was no shortage of credit in the banking system. S&P officials, according to sources, inquired about the plans of the government to deal with impact of the turbulence created by devaluation of yuan by the Chinese government. They also expressed concern about the slowdown in exports and problems in the external sector. Subranamian on his part said that India’s fiscal deficit and current account deficit were under control and declining oil prices would help in improving the external sector. The government, he added, was committed to bring down fiscal deficit to 3 per cent. He further said that gold imports have come down and the growth in the corporate as well as indirect taxes were on track and efforts were being made to broaden the tax base. He also reiterated the government’s commitment not to take recourse to retrospective amendments of the tax laws that might create fresh liabilities. Subranamian gave an elaborate presentation on the various government initiatives like ‘Make in India’ campaign and social security programmes. He said that distribution of cooking gas subsidy through the direct benefit transfer scheme has helped in saving Rs 12,700 crore.(PTI)
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India's economic growth slowed by more than expected in the quarter to June, according to data released on Monday (31 August) that will worry Prime Minister Narendra Modi and prompt more urgent calls from his aides for interest rate cuts. Gross domestic product expanded an annual 7 per cent rate in the April-June quarter, government figures showed. That was slower than provisional growth of 7.5 per cent in the previous quarter. Analysts polled by Reuters expected growth for the quarter to come in at 7.4 per cent, but a weak showing from the services sector acted as a drag on Asia's third-largest economy. "Growth conditions are still weak and are picking up in a very, very gradual manner," said A. Prasanna, economist at ICICI Securities Primary Dealership. While India matched growth in China, the loss of momentum comes just as Modi's image as the country's economic saviour starts to fade 15 months after his historic electoral triumph. He swept to power on a promise of speedier growth creating millions of manufacturing jobs. But businesses are getting restless with slow progress in removing barriers to growth. The data will also strengthen the chorus from Modi's administration for a rate cut. Some bureaucrats are already arguing for an immediate reduction of as much as 50 basis points in the Reserve Bank of India's main 7.25 per cent policy rate. "In our view, (it) clearly paves the way for two more repo rate cuts before the close of the financial year," said Jyotinder Kaur, principal economist at HDFC Bank. The RBI has cut the policy repo rate 75 basis points since January. But it left the rate on hold at its last policy review early this month. While it has not ruled out further monetary easing, it has tied up future rate cuts to the inflation outlook. 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 sees the RBI's caution as worsening the situation.COMMENTARYSHILAN SHAH, INDIA ECONOMIST, CAPITAL ECONOMICS"At face value, today's GDP figures for Q2 suggest that India matched China as the world's fastest-growing major economy last quarter. But the GDP data remain inconsistent with numerous other indicators which suggest that, at best, the economy is in the early stages of recovery after three years of tepid growth"The official GDP data are overstating the strength of the economy, most probably by a significant margin."For now the key point is that they remain inconsistent with a number of other activity indicators that point to a slowdown in the economy over much of the past three years, and only a modest improvement more recently."R. SIVAKUMAR, HEAD OF FIXED INCOME, AXIS ASSET MANAGEMENT"Certain sub-sectors have expanded quite sharply, consistent with the pick-up in manufacturing activity. Overall, I'll say it looks like a good number."I would, however, say that this new series has proved a bit difficult to work with. Conceptually the biggest questions in the new series is inflation. The GDP deflation seems to indicate a level of inflation that is much lower than the inflation we have seen in the last few years, so that projects a much higher real rate of growth.JYOTINDER KAUR, PRINCIPAL ECONOMIST, HDFC BANK"Perhaps expectations are getting ahead of themselves at this stage."There's a lot of emphasis that's being put on the opportunities that lie ahead for India and not too much attention is being paid to the challenges that remain today."From the looks of it, it seems to be suggesting a further deceleration from last quarter, which in our view clearly paves the way for two more repo rate cuts before the close of the financial year."MADHAVI ARORA, ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI"The GDP number is disappointing, but overall, going ahead we expect India's economic growth to be driven by domestic demand."With commodity prices falling, there should be a boost to corporate margins going ahead and household spending should also go up."We expect RBI to cut interest rates by 25 basis points in September as global growth concerns still continue and India is importing low inflation thanks to easing commodity prices."(Reuters)
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India stands tall amidst slowing global economic powers, writes Sumit Sharma Review by a rating agency is an event most Babus at the North Block like to underplay yet they go all the way to roll out red carpet and make detailed presentations. Even as importance of rating agencies is disputed, governments and more so the politicians like to flaunt around any rating upgrade as yet another feather in their cap and a milestone of the government's success. Visit of Standard & Poor's officials to review its credit rating comes at a crucial time. Narendra Modi is scheduled to visit the UN General Assembly in New York in less than a month. For a Prime Minister who's already led whirlwind tours to more than a dozen developed countries in less than 15 months, any upgrade will come in handy to woo foreign investment to help India's investment starved economy. This time Modi plans to repeat his magic on the western coast and Silicon Valley. India stands tall amidst slowing global economic powers. Still, authorities may not be as confident and aggressive about their achievements and the country's unique position. On the positives, India could be the fastest growing major economy as China slows, Europe stumbles, Japan stutters, Brazil slips in to a recession, other BRIICS nations battle ill-effects of falling commodity prices, and the US reconfirms the steadiness of its growth. India has several positives to flaunt, which could give it reason to seek improvement in its rating. Most critically retail inflation has firmly slowed, giving the central bank sufficient room to further lower interest rates, and for the nation to confidently attract overseas investors. A plunge in commodities and crude oil prices and some cuts in subsidies has helped the government rein in fiscal deficit. Then, the government's commitment to route more investments to build infrastructure will be an added positive. India has narrowed its current account deficit at 1.3 per cent of the Gross Domestic Product (GDP) for the year ended March 2015, giving external sector solidity. The country's foreign exchange reserves are at a steady $380 billion and the rupee is among some of the best performing currencies, even as other BRIICS currencies slide. Yet, despite being the fastest growing major economy, India too faces a slowdown in its economy. Exports have declined five months of six. Industrial growth is yet to pick up and is still struggling below 4 per cent. Agriculture faces an uncertain year as monsoon remains weak, uncertain and scattered. Any dip in rural income could have a telling impact on already slow sales of companies. Demand from consumers and producers alike remain weak and growth in bank credit is at the slowest in two decades. HSBC Purchasing Managers' Index (PMI) for the past few months has just about kept its nose above water. Business Confidence is at the lowest in four quarters. Bad loans of banks remain at an elevated level and the government was almost compelled to capitalize banks with an amount much larger than budgeted. Government ministers are fretting at their lack of success in getting the parliament to approve two key bills. The Goods Service Tax (GST), which is touted to have a potential to improve GDP by as much as 2 percentage points, is stuck in tit-for-tat disruption of the parliament. Any delay in its approval could mean it will not be implemented by the beginning of next financial year. The other, less contentious land acquisition bill will have to go back to the Standing Committee which will dilute it, much to the chagrin of industry and businessmen who were expecting the Modi government to incorporate their concerns. Moody's Investor Services has already trimmed its forecast for India's growth to 7 per cent for the year to March 2016, from earlier prediction of 7.5 per cent. The government expects GDP higher than 8 per cent. What could one expect from S&P - outlook upgrade or a reminder that Indian government has much more to do?
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For investors worried about the health of emerging economies, India's gross domestic product data for April-June should supply some cheer on Monday - the country is expected to remain the fastest growing major economy for a second straight quarter. The median estimate from a Reuters poll of economists put GDP annual growth at 7.4 percent in the quarter, just below 7.5 percent in January-March. If the number is that high, it will be a boost for Prime Minister Narendra Modi, whose image as the country's economic saviour has taken a beating after his struggle to pass his legislative agenda. But doubts persist over India's new way of calculating GDP, introduced early this year, even though the method gained an endorsement from the World Bank's chief economist. With the change method, India's growth topped that of China in the first quarter this year. Still, India's robust headline growth does not square with the not-so-rosy ground reality. "Growth momentum has improved in the last two years," said Kaushik Das, an economist with Deutsche Bank. "But the pace of recovery has been frustratingly slow." Monday's data is expected to fuel hopes in New Delhi of taking the baton of global growth as China's economic slowdown deepens. New Investment CommitmentsHowever, with an economy only one-fifth the size of China's, India is in no position to support the global economy as its northern neighbour has. Blessed with a huge domestic market and a large cheap workforce, Asia's third-largest economy has an opportunity to get more investment. Lured by its prospects, iPhone maker Foxconn this month announced a $5 billion investment in India. The announcement came days after Sony Corp. shipped its first made-in-India television sets, and General Motors unveiled a plan to spend $1 billion to expand its main plant. "It is India's moment," Junior Finance Minister Jayant Sinha said. But very few believe it can seize the moment without making land, labour, bank and tax reforms. Modi swept to power in last year's general election on a promise of speedier growth creating millions of manufacturing jobs. But just 15 months after that electoral triumph, disenchantment has set in. Businesses are getting restless with slow progress in removing the hurdles that have stymied growth. Parliamentatry ParalysisPolitical acrimony, meanwhile, has left parliament paralysed. The last session ended without passage of a single reform legislation. Shilan Shah, India economist at Capital Economics, described the washout session as a "missed opportunity". Yet India is on mend. Robust growth in indirect tax receipts points to a nascent revival in manufacturing sector. Foreign direct investments are up 30 percent from a year earlier. However, the improvement in the economy is in large measure due to a crash in global commodity prices, which has cooled inflation and helped narrow the fiscal and current account deficits. Sure, urban consumption demand is picking up, but rural consumers remain glum. With capacity utilisation rates showing no signs of improvement, firms are not in a hurry to invest in new plants and machinery. Festering problem of bad loans, meanwhile, has impeded credit flow and delayed full transmission of interest rate cuts. The Reserve Bank of India has cut the policy repo rate by 75 basis points since January, but banks, in response, have lowered lending rates by just 30 basis points. "Key structural reforms remain crucial for a sustained pickup in economic growth," analysts at Yes Bank said in a note. (Reuters)
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Railway Minister Suresh Prabhu on Saturday (29 August) invited other countries to make India their base for manufacturing as the government would be investing $120 billion over the next five years to develop railway services. Prabhu said the main thrust of any transport organisation should be on safe and secure transportation with zero scope for accidents and emphasised the need to launch "zero accident mission" with definite timeframe. "World-wide focus on transportation is safety and it is for Indian Railways as well. It is most important for us to ensure safe travel with the help of latest technology," Prabhu said at an international seminar here. The seminar on advances in command, control and communication system for main line, Metro and high speed transit systems was attended by many representatives of foreign nations including Japan, Korea, Russia, among others. He said India has technological collaboration with many countries in rail sector. Highlighting the scope of investment in rail sector, he said, "The government will be investing about $120 billion in the next five years in railways and the amount will be more in future." Targeting investments from abroad, Prabhu said India has the advantage of skilled manpower, big market and large manufacturing base and in addition to internal consumption, such manufacturing hubs have export potential. "There is a positive environment for make in India. We would like to have partnership with other countries to make India a manufacturing hub. Come and make your goods here and then export from here," he said. He further said that Railways is working on Make in India strategy to attract investments. He also laid emphasis on development of technology like remote sensing to control accidents at unmanned level crossings by providing indications about approaching trains and any obstruction on track. Prabhu pointed out that in such conferences "we should focus on global benchmarks and assess our standing as compared to global standards". "We should adopt new appropriate technology to minimise human errors. Our objective should be to have zero accident mission with a definite time line," he said. He, however, said that this requires integrated approach involving use of cost effective advanced technology and properly trained manpower. He further said that new advances in command, control and communication system can play a very vital role in evolving safe and secure operation environment on Indian Railways where there should be no scope of accidents even in case of human errors. (PTI)
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The European Commission will launch a study in September of the ride-hailing app Uber in an effort to settle legal disputes that have pitched the U.S. start-up against conventional taxis across Europe, three people familiar with the matter said on Friday. Since opening in Paris in 2011, San Francisco-based Uber has run into vehement opposition from taxi drivers, who complain it competes unfairly by bypassing local laws on licensing and safety. Uber has responded by submitting complaints to the European Commission against German and Spanish court bans, as well as a new French law on taxis. The study will attempt to determine the legal instruments Brussels might use to decide whether Uber is a transport service or just a digital service, an EU official said. Uber argues it is a digital platform that connects willing drivers with customers. Being considered a transport service might make it subject to stricter rules on licensing, insurance and safety. The study will review the regulatory regimes for taxi services in all member states and assess if an EU-wide framework is needed. Currently, taxis and vehicle-with-chauffeur services are regulated at a national level. “This investigation appears to indicate that the European Commission believes that the manner in which the taxi and private hire sectors are currently regulated in some member states is dysfunctional and is no longer fit for purpose, not to mention new barriers to entry for innovative, technology-based services such as ridesharing," an Uber spokeswoman said. The study will run in parallel with a case at the European Union's top court that could set a precedent for legal battles across the continent. However, it is likely the European Court of Justice will rule before the completion of the study, expected around June next year. In the meantime, the Commission will also continue assessing the complaints against France, Germany and Spain. In May, the Commission asked France for more information on its new taxi law, which Uber says favours regular taxis at its expense. The Commission has previously said it welcomes innovative services such as Uber as part of the so-called sharing economy - where individuals are put in touch with others offering services, such as travel or accommodation. However, businesses such as Uber should not circumvent national laws on taxation, safety and social aspects, EU Transport Commissioner Violeta Bulc said in a letter to a member of the European Parliament in February. The sharing economy has flummoxed policymakers, torn between promoting innovative services and ensuring that incumbent industries can still compete on fair grounds. "There needs to be a middle way", said an EU official. (Reuters)
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