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Indian Economy

Indian Economy

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Published by Pratik Patil

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Published by: Pratik Patil on Sep 07, 2011
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Page | 1
Current State of IndianEconomy
June 2011 
 
Page | 2
Current State of Indian Economy
 –
June 2011
1
 
EXECUTIVE SUMMARYGDP growth
 
GDP growth figures for Q4, 2010-11, highlight an unmistakable downward trend. While in Q1, 2010-11, GDPgrew by 9.3 percent, in Q4, 2010-11, GDP growth came down to 7.8 percent.
 
Sectors like manufacturing and mining & quarrying have seen considerable erosion of growth momentum overthe last one year.
 
While consumption demand is still holding, a sharp decline in growth of investments is seen. Growth in GrossFixed Capital Formation [GFCF] has dipped from 17.4 percent in Q1, 2010-11 to 0.4 percent in Q4, 2010-11.
 
Given the evolving situation, growth in 2011-12 is likely to be close to the 8 percent mark.
Industrial Production
 
Weakness in industrial production trend continues. In April 2011, IIP registered a growth of 6.3 percent. InApril 2010, growth in IIP was to the tune of 13.1 percent.
 
 
Amongst the use based industrial groups, a similar streak of weakness is seen with growth in the capital goodssegment, intermediate goods segment and consumer goods segment slowing down from 35.5 percent, 11.9percent and 13.8 percent respectively in April 2010 to 14.5 percent, 3.4 percent and 2.9 percent in April 2011.
1
 
This report has been prepared by the Economic Affairs and Research Division, FICCI
 
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Quarterly Growth in GDP (2004-05 prices)
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IIP growth and Repo rate
IIPRepo rate
 
Page | 3
Core Sector
 
Data for April 2011 shows a perceptible decline in performance of the core sector with growth dipping from8.5 percent in April 2010 to 4.6 percent in April 2011. Sectors like natural gas, fertilizers, cement and steel arelargely responsible for this poor performance. Growth in the coal sector however moved from (-) 2.9 percentin April 2010 to 2.8 percent in April 2011.
Inflation
 
The inflation situation in the economy continues to be a cause for concern. Despite large scale tightening of the monetary policy by the RBI and other steps taken by the government, inflation continues to remain closeto the double digit mark.
 
In May 2011, WPI based headline inflation stood at 9.1 percent. This is higher than 8.7 percent inflationrecorded in April 2011. Core inflation too has moved up from 8 percent in April 2011 to 8.6 percent in May2011.
 
Near term outlook for inflation is not too encouraging and there are chances that we may see inflation jumpto the double digit territory on a few occasions.
 
High international oil prices, likely decontrol of diesel prices, high global food prices and hike in MinimumSupport Prices for the upcoming agriculture season are some of the factors that constitute the upside risks toinflation.
Foreign Trade
 
The strong momentum in exports, seen particularly during the second half of 2010-11, has continued in theyear 2011-12 as well.
 
In April 2011 exports totaled US$ 23.8 billion and represented a growth of 34.4 percent over the same monthof the previous year when exports totaled US$ 17.7 billion.
 
While this strong start in 2011-12 is encouraging, there are indications that this high growth will not besustained in the months ahead.
 
Rising interest rates, rising raw materials costs and oil prices, withdrawal of incentive schemes like DEPB andlikely slowdown in Asian economies are some of the reason that have tempered the outlook for exports.
 
In April 2011, our imports totaled US$ 32.8 billion and registered a growth of 14.1 percent over the samemonth of the previous year when imports amounted to US$ 28.8 billion.
 
With developments in the Middle East and North Africa region showing no signs of a let up and with OPECresisting any upward revision in daily oil production quota, oil prices are likely to remain firm in the near term.
This will continue to put pressure on India’s overall oil import bill.
 
As regards non-oil imports, while a slowdown in the domestic economy could lead to some moderation in thenon-oil import bill, any large respite here can be ruled as prices of commodities other than oil are also firmingup.
Foreign Investments
 
In 2010-11, foreign investment flows into India saw a dip of about 17 percent over the previous year. Further,this dip is largely on account of a slowdown seen in case of FDI.
 
In 2009-10, FDI inflows into India totaled US$ 37.7 billion. In 2010-11, this figure came down to US$ 27 billion.
 
Data also shows that of out of the top 25 sectors, 15 sectors have seen a dip in FDI flows during April
 –
Feb2010-11 compared to the same period in 2009-10. Sectors like services, construction, housing and real estate,telecommunication and agricultural services are the ones where investment flows have slowed downconsiderably.
 
In 2010-11, portfolio flows totaled US$ 31.5 billion and were only a tad below US$ 32.4 billion received in2009-10.
 
The outlook for portfolio flows in the current year is not too encouraging. Global fund managers areparticularly concerned over the evolving macro-economic situation with inflation showing limited signs of abatement and growth slowing down at a fast clip.

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