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Indian Economy 2008 September Status

Indian Economy 2008 September Status



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Published by: ani6odbr on Nov 05, 2008
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urrent State
ndian Economy
September 2008
Federation of Indian Chambers of Commerce and IndustryNew Delhi
----- Recent Trends in Indian Economy -----
Industrial Growth :
The recent data on industrial production for July 2008 shows an improvement in the industrial growthover the previous months. The industrial growth was found to gradually pick up in July 2008-09compared to the growth posted in the previous months of this year.However the growth during the four - month period (April- July) of the current fiscal remains muchlower than the growth numbers recorded in the corresponding months of the last fiscal.During the April- July period of 2008-09 growth in the manufacturing and electricity sector accelerated compared to the growth registered in the previous months of this year. However thegrowth performance remains weak when compared to the growth of last fiscal. The increase inproduction was witnessed only in the mining sector surpassing the growth posted in the previousyear.Further following the use-based classification we see growth in intermediate and basic goods in July2008 was subdued as against the growth in the same month of the previous year. Output in thecapital goods sector however increased by 22% in July this year compared to 12.3% increase in thesame month of previous year. The growth in the consumer goods came mainly from the consumer durables segment that increased by 11.2% compared to the negative growth posted in thecorresponding month of last year.In July 2008-09 growth in seven among the seventeen industry sectors namely food products,beverages and tobacco, paper, metal products, machinery, transport equipments and other manufactured items exceeded the growths posted in the previous year. While basic metals, non-metallic minerals and basic chemicals slowed in July 2008-09 compared to the corresponding monthof the previous year, production of 6 industry sectors namely rubber, leather, wood, jute, wool andcotton was found to drop.
Core infrastructure industries :
Growth in the core infrastructure industries slowed during the four-month period of the present fiscalas compared to the growth in the previous fiscal. During the April-July period of 2008-09 the overallinfrastructure industries grew at a low 3.7% compared to 6.6% recorded in the previous year. Outputin coal sector accelerated during the period April- July 2008-09 compared to the same period of lastyear. On all the other sectors the production growth slowed down compared to growth logged in lastyear. There was a strong slippage in the production of crude petroleum during these four months.
Inflation Trends :
The average WPI based inflation calculated for the month of August 2008 continues to reign above12.5%. Inflation rose from an average of 12.2% in July to 12.5% in August this year. In the weekending 13
September 2008 the WPI based inflation stood at 12.14%. During this time last year theannual rate of inflation stood at 3.51%.The sharp difference in the rate of inflation between now and last year has been mainly on accountof a sharp rise in the price index of fuel and some manufactured items. Measures to curb the risingfood articles and other manufactured commodity prices have been put in place, however these onlyshowed a marginal impact on the rising price index. The fall in fuel prices from its peak USD 147 /barrel to below USD 100/barrel is yet to be captured in the recent price index.
Monetary Indicators:
Money supply swelled by 5.2% (percentage rise is August end 2008 numbers over March end 2008)in August 2008 as against 5.1% in the same month of previous year. Borrowings by the governmentwent up by 7.4% compared to 5.7% in the previous year. Despite rising interest rates bank credit tothe commercial sector rose by 4.2% as against 1.7% recorded previously. The borrowings are highdue to the huge demands in the oil sector. Foreign exchange assets build-up was significant in August 2008 compared to the growth seen in the previous month of this fiscal, but was found to belower when compared to 5.9% rise seen in the previous year.There has been high accumulation in aggregate deposits during August 2008. Growth in investmentsin the government and other approved securities shows a sharp deceleration compared to thegrowth seen in the previous year.Interest rates including the PLR (13-14%) and the deposit rates cycles have peaked and any further tightening of money supply can hamper industrial growth.
Stock Market Trends:
Number of events of political nature and events in the financial markets impacted the stock marketsadversely. After the major drop in the 30 stock index sensex in July to 13K the market somewhatrecovered in August, rising to 15 K points before dropping to 14.5 K in Sept 2008. The recentnumbers show that the market slid further by another 500 points going below 13 K points due to theuncertainties in the global and domestic markets.

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