India’s economic data for the first seven months of fiscal 2013-14 provides no reason for cheer. The government should hope that the November-March period shows improvement in economic data for the economy to clock at least similar rate of growth of 5% seen in fiscal 2012-13. The first quarter 2013-14 GDP growth was at 4.4% and given weak data, growth is unlikely to be much higher in the second quarter.
The only bright spot for the economy is the CAD (Current Account Deficit). CAD for fiscal 2013-14 is expected to come in at USD 56 billion as per RBI estimates. CAD was USD 88 billion in fiscal 2012-13. The sharp drop of 36% in CAD will bring down the deficit from 4.8% of GDP seen in 2012-13 to below 3% of GDP in fiscal 2013-14.
The drop in CAD is largely due to the drop in imports and increase in exports leading to a fall in trade deficit. Imports fell by 3.8% year on year in the April-October 2013 period to USD 270 billion from USD 280 billion seen in the same period last year. The drop in imports was primarily due to drop in gold and silver imports that fell by 12.86% year on year to USD 24 billion from USD 28 billion.
Exports showed a growth of 6.5% in the April-October 2013 period to USD 179.7 billion from USD 168.7 billion. The drop in the value of the Indian Rupee by over 20% against the US Dollar has helped exports register growth.
The question is what will happen to the CAD if curbs on imports of gold are removed? The Government and the RBI are unlikely to remove the curbs until June 2014 when the elections get over in the country.
IIP (Index of Industrial Production) growth for the first half of fiscal 2013-14 was at 0.4%, better than the 0.1% growth seen in the previous year but still extremely anemic. Manufacturing growth for the first half is just 0.1%. Corporate tax collection for the April-October 2013 period has grown by 8.2% while total gross direct tax collections has grown by 11.6% against budgeted levels of 17.5%.
Indirect tax collections have grown by 5.1% in the April-September 2013 period against budgeted levels of 17.5% growth. Tax collection growth is well below budgeted estimates reflecting the slowdown in the economy.
Bank credit and deposit growth have been better than RBIs estimates with growth of 15.4% and 16.5% respectively as of 1st November 2013. RBIs estimates of credit and deposit growth are 14% and 15% respectively. Higher bank credit growth is not showing in the overall investment climate as seen by the sluggish growth in IIP.
Inflation as measured by the CPI (Consumer Price Inflation) printed at 10.09% for October 2013, the highest level since March 2013. Vegetable prices that rose 45% year on year drove the CPI higher from levels of 9.84% seen in September 2013. Food prices coming off will be the key to lower CPI inflation going forward. Core CPI that is stripped of food is trending at 8% levels.
WPI (Wholesale Price Inflation) printed at 7% for October 2013 against levels of 6.46% seen in September 2013. Food inflation at 18% levels drove the WPI higher. Non food manufacturing WPI rose to 2.6% from levels of 2.1% seen in September 2013.
Markets are expecting the RBI to hike the repo rate in December 2013 to bring down rising inflation expectations.
US economy grew by 2.8% in the third quarter of 2013 against growth rates of 1.1% and 2.5% seen in the first two quarters. US economy added 204,000 jobs in October 2013 against expectations of 120,000 job additions. Unemployment rate in the US rose to 7.3% in October against 7.2% seen in September. CPI rose 1.2% year on year in September.
The Fed believes that the US economy is showing strength but is not showing enough strength to bring down unemployment rates. The Fed is expected to maintain its asset purchase program of USD 85 billion a month until the first quarter of 2014.
ECB lowered its key policy rate by 25bps to record lows from 0.5% to 0.25%. Eurozone unemployment at record high levels of 12.2% and growth bordering on recession coupled with CPI at 0.7% for October 2013 forced the ECB to lower rates. ECB is likely to maintain accommodative monetary policy well into 2015.
China saw industrial production rise 10.1% in October while CPI was 3.3%. Exports rose 5.6% in October from a drop of 0.3% in September. Manufacturing grew in October. GDP growth for the third quarter of 2013 was at 7.8%, the fastest in the year. China is grappling with property price bubbles and overinvestments and policy makers are focusing on stable rather than high growth rates.
Table 1: India Macroeconomic Data October 2013