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Showing posts with label IMF. Show all posts
Showing posts with label IMF. Show all posts
Notwithstanding a sharp cut in the government's growth forecast at the fag end, 2015 will go down as the year when India emerged as the fastest-growing large economy, despite setbacks such as 12 months of negative export growth, another bad monsoon and roadblocks to the far-reaching goods and services tax regime.

In addition to growth, the economy also saw some positives. Global crude oil prices fell to the lowest levels in over a decade, checking the balance of payments from going awry, inflation rate remained more-or-less under control, despite spikes in food prices, and economic reforms got a big push, notably in the form of further opening up of a host of industries to foreign equity.

India's real GDP in the first half of the current fiscal grew at 7.2 percent as per official data, which was slightly lower in comparison to the GDP growth of 7.5 percent in the previous fiscal.

India's external position improved at the same time. Forex reserves are a little above $350 billion in November 2015 as compared to a little over $270 billion in July 2013. Net foreign direct investment (FDI) inflows have increased to $17 billion in the first half of 2015-16 in comparison to $15.8 in the same period last year. The second quarter's current account deficit logged at a level of 1.6 percent of GDP.

However, the global slowdown continued to weigh on exports, which have declined for 12 straight months. The government said this was also pulling down growth but felt the situation would improve in the coming months.

On the fall in the value of the Indian rupee, the finance ministry's mid-term economic review attributed it considerably to the major devaluation of the Chinese Yuan.

The year also began with India's changing the way it calculated its gross do-mestic product under a new series, though the controversy over the changed methodology employed refuses to die down with economists even terming it obscure.

Changing the base year to 2011-12 from 2004-05 in January, the Central Statistics Office said India's real GDP, that is adjusted for inflation, grew by seven percent in the first quarter of this fiscal, slower than the 7.5 percent expansion in the quarter before - but much higher than 6.7 percent registered in the first quarter of the last fiscal.

Mr. Arun Kumar, till recently a professor at Jawaharlal Nehru University here, told IANS that in view of negligible industrial growth, drought-like conditions in past years and no substantial increase in profits and wages, the new numbers fall flat from the point of credibility.

"Even input costs, that are now low with falling oil prices, were not low in the period 2011-12. Let the statistics office show the growth figures for up to 10 years prior to the base year for us to consider the new series seriously," Mr. Kumar said.

The midyear review released this month lowered the economic growth forecast for the current fiscal to the 7-7.5 percent range, from the previously projected 8.1-8.5 percent, mainly because of lower agricultural output due to deficit rainfall.

It also said there may be a need to reconsider next year's fiscal deficit target of 3.5 percent.

"GDP growth has been powered only by private consumption and public investment is a concern. The proposed wage hike for government workers may impact plan for next fiscal." The economy continues to send "mixed signals" over growth, while all economic indicators were not yet aligned in pointing to a higher trajectory of growth, it said.

India's eight core industries, representing major infrastructure sectors, grew at 2.3 percent in the April-September period of the current fiscal, compared to a rate of 5.3 percent in the same period of the previous fiscal - the fall in growth rate caused by lower expansion in electricity, coal and cement sectors and negative growth in steel and natural gas sectors.

Mr. Jaitley's first full union budget also announced an agreement earlier in the year with the Reserve Bank of India (RBI) that it constitute a Monetary Policy Committee to determine by majority vote on the pol-icy rate required to achieve the inflation target.

Meanwhile, RBI Governor Mr. Raghuram Rajan cut the interest rate in January for the first time in nearly two years and followed up with two other reductions to bring down the central bank lending rate to 6.75 percent.

Politics intervened during the year to prevent the enactment of India's most important reform of its indirect tax regime by way of the pan-India Goods and Services Tax ( GST) that the government has targeted for implementing from April next year, because the ruling NDA does not have the numbers to pass the constitution amendment bill in the upper house.
Highlights
  • Real GDP in first half of fiscal grew at 7.2 percent
  • India emerges as fastest-growing large economy
  • Forex reserves of over $352 billion as on the first week of December.
  • FDI inflows increased to $17 billion in the first half of 2015-16
  • Indian basket of crude oils fell below $40 a barrel
  • Foreign investment limits raised in defense, real estate and insurance, foreign equity in railways
  • Retail and wholesale inflation rates rose in November to 5.41 percent and (-)1.9 percent respectively, largely due to an increase in food prices
  • Infrastructure sectors grew at 2.3 percent in the first half of fiscal
  • Government lowers GDP growth estimate for fiscal by one percent to 7-7.5 percent
(Source – The Economic Times, 24-December-2015)
India's economic expansion may have gained speed last quarter as manufacturing and services output improved even as weak rains hurt agriculture, economists said.

Gross domestic product in the three months ended Sept. 30 rose 7.4 percent from a year earlier, according to the median estimate in a poll of 14 economists by The Wall Street Journal. That is a step up from the 7.0 percent expansion in the preceding quarter.

The government is scheduled to issue the data on Monday.

"India's GDP growth is expected to have improved as industry clocked the highest output gains in over four years, while services remained resilient," said Mr. Sujit Kumar, an economist at Union Bank of India.

Industrial production data that were released earlier show output of manufacturing, mining and utilities firms rose 4.7 percent from the previous year during the quarter. That is a modest pickup from the 3.2 percent increase in the previous quarter and the strongest pace of expansion since the three months ended June 2011.

Still, the country received 15 percent less than the average level of rainfall during the June to September monsoon season the second successive year of shortfall. That is expected to weigh on farm production.

Some economists believe the weakness in the agricultural sector could more than offset the better performance of other sectors. A sustained decline in India's exports, which have been falling for almost a year now, also are expected to weigh on the economy.

Most economists predict Asia's third-largest economy will grow about 7.5 percent this year, helped by policy measures aimed at improving business conditions in Asia's third-largest economy.

In September, the Reserve Bank of India lowered its growth forecast to 7.4 percent from 7.6 percent, despite the four rate cuts it has delivered this year to stimulate investment. A further cut by the RBI, which will next review policy on Tuesday, isn't widely expected until next year.

"The RBI lowered its growth projection citing global headwinds, weak rains and sluggish private sector investment activity," Ms. Radhika Rao, India economist at DBS, said in a research note. "We expect these factors to also influence Monday's GDP numbers, but firm discretionary spending will pick part of the slack."

The spotlight will now be on the winter session of Parliament that started this week. Investors are hoping the government will be able to reach a consensus with opposition parties to help push through changes that will help growth, particularly one to enable the implementation of a nationwide uniform tax on goods and services.

"If some important bills get passed, then it will be positive for investor and business sentiment," said Mr. Saugata Bhattacharya, chief economist at Axis Bank. "That would translate to increased economic activity."

(Source – Market Watch, 27-November-2015)
NITI Aayog’s vice-chairman Mr. Arvind Panagariya on Friday exuded confidence that India could be an $8-trillion economy within next 15 years or even less if it continues with growth-enabling policies.

"The prospects for our economy to become the third largest one in the world in less than 15 years are excellent today," Mr. Panagariya said while delivering the 6th R.K. Talwar memorial lecture on 'Growth, Poverty and Economic Trans-formation', organized by the Indian Institute of Banking & Finance.

Mr. Raj Kumar Talwar was one of the most successful Chairmen of the SBI. He led the bank from 1969 to 1976.

The World Bank and the IMF as well as many analysts have predicted that the country would become the third largest economy after China and the US with a GDP of $10 trillion by 2030.

"Our savings rate remains nearly 30 percent of the GDP and has prospects to rise above 35 percent, a level reached in 2007-08. We have a young population so that labor shortages will not be an impediment to growth," Mr. Panagariya said, adding our very low per-capita income leaves us far away from the global technology frontier.

Describing the late Mr. Talwar as "the rarest of rare officers that we have ever produced," he said the late banker was so "spotless in his personal and professional life that even an all-powerful Emergency-era government, determined to remove him from office for refusing to do its unjust bidding, could not muster enough courage to do so.

"Even after a CBI inquiry and a legislative amendment later, the then government could only bring itself to asking Mr. Talwar to take a leave of absence for the last 13 months of his tenure," he recalled.

Stating that only the higher growth can lead to poverty reduction, he said during the first three decades, the economy grew at a snail's pace with per-capita income rising just 50 percent by 1980-81. In the following decade, there was some acceleration with another 50 percent added to the original per-capita income by 1990-91.

The 1990s saw further acceleration, adding full 100 percent over the 1950-51 income. The fastest gain came in the new millennium, however, with full 300 percent added to the original per-capita income. Movements in poverty mirrored these movements in per-capita income, he said.

With extremely low initial per-capita income, slow growth meant that per-capita income remained low and no perceptible assault on poverty could be done, he argued.

"Once growth picked up, however, per-capita income rose and poverty too began to recede. The sharper the rise in incomes the sharper was the decline in poverty.

Poverty fell more sharply in rural areas thereby partially bridging the gap in poverty between the two regions. The association between growth and decline in poverty is unmistakable," he con-cluded.

(Source – Assorted with the Inputs from PTI)

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The World Bank projected on Thursday that India’s GDP growth will remain below 8 percent till 2018, the penultimate year of Mr. Modi Government’s tenure. The projection contrasts sharply with the Government’s projection that the growth rate will cross 8 percent this year and will be in double digits before the end of its term.

“Productivity and investment need to accelerate to match India’s ambitions of double-digit growth,” World Bank’s Senior Country Economist for India Mr. Frederico Gil Sander cautioned, releasing its India Development Update.

GDP growth is expected to accelerate gradually to 7.5 percent in 2015-16 and to 7.8 and 7.9 percent in the subsequent two fiscal years, the Update projected. However, this acceleration in growth is conditional on the growth rate of investment picking up to 8.8 percent during the period 2015-16 to 2017-18, it said. “While growth will very likely remain above 7 percent in the next fiscal year, there is significant UN-certainty about the momentum of the economy.”

The projections would have been higher if the Constitutional Amendment Bill meant for the rollout of the Goods & Service Tax had cleared Parliament, Country Director World Bank India Mr. Onno Ruhl told reporters.

For the economy to achieve its potential, the Update called for three key reforms: First, boosting balance sheets of the banking sector by addressing the underlying challenges in the infrastructure sector, espe-cially power and roads. Second, continuing to im-prove the ease of doing business and enacting the GST and third, enhancing the capacity of states and local governments to deliver public services as more resources are devolved from the centre.

The World Bank flagged the contraction in exports for the past 10 months, resulting in a loss of market share, and the stressed financial sector as key concerns.
“Although India may be able to achieve fast GDP growth without export growth for a short period, sustaining high rates of GDP growth over a longer period will require a recovery of export growth…India has lost market share in the global ex-port market as India’s exports have become uncompetitive,” the Update noted.

It also cautioned that since oil prices are unlikely to fall further, reducing deficits beyond the current financial year will be another key challenge for the Modi Government.

The Update lauded the build-up in India’s foreign ex-change reserves: from a level equivalent to six months of imports in 2012-13 to nine months of imports as a consequence of the current account deficit narrowing. It projected the deficit to widen margin-ally to (-) 1.4 percent this year followed by (-) 1.7 per-cent and (-) 2 percent in the subsequent two years. It also praised the greater devolution of taxes to the states and the higher capital spending by the Centre.

(Source – The Hindu, 30-October-2015)
Are you too caught up with latest happenings in Greece? Worried about its financial repercussions on Indian markets and economy? Its time you shift your focus! A bigger threat is playing out right next door, in China. After rising to historic highs, Chinese stock markets are witnessing an unabated free-fall since last month. This has raised fears of a stock market bubble. Some analysts have described the situation as the biggest stock market bubble since the dot-com boom of the 1990s.
Virginia Media and Research
We give you a lowdown of the situation in China and its possible effects on other countries, including India:
What is going on: Chinese markets were the best performing emerging market in the world last year. The country’s main index Shanghai Composite more than doubled and was up over 40% this year. This was until June 12. Since then, China stocks have plunged 30% in three weeks and to four-month lows. On June 8, in an unprecedented move, around 1300 companies—half of China’s listed companies, suspended their trades in the stock market. The move was taken to insulate themselves from the massive declines in the equity market.
Why markets crashed: Three main reasons are being cited for the dramatic fall:
Chinese stock prices were highly overvalued. The market continued to rise because of herd mentality—investors see others buying them, and so they buy those stocks too—and not its inherent fundamentals. There were fears that stock prices have reached unsustainable levels at a time the economy is not doing too well
A country’s stock market performance is directly correlated to its economic performance. However, there has been a worrying disconnect between the two in the case of China.  Chinese economy is losing steam .Its GDP growth rate halved from 14% in 2007 to 7.4% last year. Investment and retail sales have also declined. This indicates that the markets were driven purely due to momentum and not the country’s inherent fundamentals.
Another reason for the sharp fall is the rise in margin trading. There has been a 5-fold rise in margin debt. In margin trading, an investor borrows money from his broker to purchase stocks.  If the stock price falls below a certain level, then he will have to sell of some shares to pare the fall.
Wealth eroded: The rout in Chinese shares has erased at least $3.2 trillion in value, or twice the size of India’s entire stock market, according to Bloomberg. The wealth alone is equal to 10 times the size of Greece economy!
China government intervenes: The Chinese government has intervened to stem the fall. The stock market regulator has suspended initial public offerings (IPOs) for the time being. The country’s central bank cut deposit and lending rates , its fourth rate cut since November. The steps were taken as a response to the weak economic data and to inject more liquidity in the markets. However the move has proven counter-productive till date. Investors seem to be losing faith on the Chinese government.
Effect on India: India could feel the heat of the turmoil in China.  The Sensex slumped 1.7% on Wednesday. However, analysts view the fall as a temporary shock. They are of the opinion that the fall in China is good news for India. With, the turmoil in Chinese markets, India could be the next best favourable investment destination. A flight of capital from China to India is a possibility in the future.
However, if the turbulence in Chinese markets spills over to its economy, India could be in trouble. This is because China is India largest trading partner. A turmoil in the Chinese economy and markets would mean businesses could pull back from investments till the situation stabilizes.
Contra view: Some analysts are of the opinion that the market crash is temporary and there is no bubble as such. The valuations are not too high as projected. The Chinese economy has clocked in remarkable growth for years. While its markets slumped after the Lehman crisis of 2008, it is reaching its correct valuations now.

(Source: Simplus Information Services – Fri 10 Jul, 2015)
Keeping its projections for India and China unchanged, the International Monetary Fund on Thursday forecast that India will grow a clip faster at 7.5 percent in 2015 and 2016, overtaking a slowing down China.

While India's GDP growth would go up from 6.9 percent in 2013 and 7.3 percent in 2014 to 7.5 percent over the next two years, China would slow down from 7.7 percent in 2013 and 7.4 percent in 2014 to 6.8 percent in 2015 and 6.3 percent next year, IMF said.

The July update of the April 2015 World Economic Outlook (WEO) predicting a slower growth in emerging markets and a gradual pickup in advanced econo-mies projected global growth at 3.3 percent in 2015, marginally lower than in 2014.

In 2016, growth is expected to strengthen to 3.8 percent, the report said attributing the small onward revision to global growth for 2015 to a setback to activity in the first quarter of 2015, mostly in North America.

Nevertheless, the underlying drivers for a gradual acceleration in economic activity in advanced economies "easy financial conditions, more neutral fiscal policy in the euro area, lower fuel prices, and improving confidence and labor market conditions" remain intact, the report said.

In emerging market economies, the continued growth slowdown reflects several factors, including lower commodity prices and tighter external financial conditions, structural bottlenecks, rebalancing in China, and economic distress related to geopolitical factors, it said.

Growth in advanced economies is projected to increase from 1.8 percent in 2014 to 2.1 percent in 2015 and 2.4 percent in 2016, a more gradual pickup than was forecast in the April 2015 WEO.

The IMF also maintained its forecasts for a pickup in growth in the euro zone, despite Greece moving ever closer to the edge of default and an exit from the currency bloc as it races to find a last-minute third bailout. "Developments in Greece have, so far, not resulted in any significant contagion," the IMF said. "Timely policy action should help manage such risks if they were to materialize."

The unexpected weakness in North America, which accounts for the lion's share of the growth forecast revision in advanced economies, is likely to prove a temporary setback, the update said.

Growth in emerging market and developing economies is projected to slow from 4.6 percent in 2014 to 4.2 percent in 2015, broadly as expected. In 2016, growth in emerging market and developing
economies is expected to pick up to 4.7 percent, largely on account of the projected improvement in
economic conditions in a number of distressed economies, including Russia and some economies in
the Middle East and North Africa.

The projected pickup in global growth, while still expected, has not yet firmly materialized, according to the WEO update.

Raising actual and potential output through a combination of demand support and structural reforms
continues to be the economic policy priority, the report said.

Efforts at implementing structural reforms remain urgent across advanced economies, both to tackle
crisis legacies and to raise potential output.

In emerging market and developing economies, macro-economic policy space to support demand is generally more limited but should be used to the extent possible, the report said.

Structural reforms to raise productivity and remove bottlenecks to production are urgently needed in
many economies, the update suggested.

(Source – IANS, 09-July-2015)
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