India economic data is looking brighter but it is not being reflected in government and corporate confidence. IIP (Index of Industrial Production) growth for the month of November 2011 came in at 5.9% year on year against a negative growth of 4.7% seen in October 2011. IIP grew 10.4% month on month while manufacturing grew 12.1% month on month. India’s tax collections are not painting a very negative picture with indirect tax collection higher by 16.1% and net direct tax collections higher by 8% year on year in the April-December 2011 period. Vehicle sales for December 2011 showed a 14.2% growth on a year on year basis. Demand for vehicles is holding up despite monetary tightening by the RBI.
Inflation is seeing a downward trend with inflation for December 2011 expected to come in at 7.5% against 9.13% seen in November 2011. Inflation as measured by the WPI (Wholesale Price Index) is expected to trend down to below 7% levels in the month of March 2012. Primary article inflation (weight of 20% in the WPI) has come off to levels of 0.51% as of week ended 31st December 2012 with food inflation at a negative 2.9%. Primary article inflation was at over 10% levels a couple of months ago.
On the face of it, improved IIP data coupled with a fall in inflation looks positive. RBI can ease off on its inflation watch and cut policy rates to help growth.
Bank credit growth has come off to 16.1% levels year on year as of December 2011. Bank credit was growing at over 21% levels at the beginning of the fiscal year 2011-12. The sharp fall in credit growth ties in with corporate sound bytes on investments with big infrastructure companies such as L&T talking about investment slowdown. Rural consumption looks to be slowing down with two wheeler major Bajaj Auto showing lower sales growth in December 2011. The company management sounded cautious on rural demand for its vehicles.
The Indian government has accepted a slowdown in GDP growth and has sounded out that GDP growth for 2011-12 can come in below 7% against revised forecasts of 7.5%. Government’s finances are showing weakness with borrowing for 2011-12 increased by Rs 40,000 crores, over and above the upward revision of Rs 53,000 crores made in September 2011. Rising subsidy bill for fuel is hitting the government hard with subsidy payout for Oil Marketing Companies for 2011-12 expected at Rs 70,000 crores against revised budgeted levels of around Rs 40,000 crores.
Manufacturing indices as measured by the PMI (Purchasing Managers Index) showed growth for December 2011 across US, China and India. US economic data has been positive with its unemployment rate coming down to 8.5% in December 2011, a three year low. US economy added 200,000 jobs in December 2011. The US economy has been steadily adding jobs over the last fifteen months albeit at a slow pace.
Headline inflation in China printed at 4.1% for December 2011 against 4.2% for November 2011. China’s inflation has dropped from highs of 6.5% seen in mid 2011. China’s export growth slowed in December 2011 with exports growing at 13.4% against 13.8% growth seen in November 2011. China saw the first quarterly drop in its foreign exchange reserves from USD 3.2 trillion to USD 3.18 trillion as of December 2011. China is expected to cut its reserve requirements for banks to improve economic growth prospects.
Eurozone economic indicators continued to show weakness with contraction in manufacturing in December 2011 taking the fourth quarter manufacturing growth to the weakest levels since 2009. Unemployment rate in the Eurozone stayed above 10% in December 2011. Germany, which is the biggest economy in the Eurozone saw its fourth quarter GDP growth contract on the back of weakness in economic growth in other Eurozone nations.
Global economic indicators point to a weak growth in Europe and subdued growth in the other parts of the world. Monetary easing by central banks in emerging economies coupled with huge liquidity infusion by the US Federal Reserve and the European Central Bank could take up growth in developing countries in calendar year 2012.