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    Highlights • 7.9% growth in second quarter powered by govt, lower growth next quarter • Growth in 2009-10 still estimated by us at 6.7%, agriculture well factored in • As expected, exports decline even lower in October, return to low levels of positive growth by March • Inflation hits manufacturing as well as commodities rise on stronger growth • Capital controls on the radar as inflows increase From the beginning of this year, we have been predicting a growth rate for 2009-10 at 6.7%. While most analysts have been revising their estimates upwards throughout this year, we maintain our growth estimate, despite the high 7.9% release by the government for the second quarter. There are two reasons for this – one, as the government itself has pointed out, the impact of the drought this year will make itself felt only in the Q3 estimates, when the kharif output is out, and two, the high growth in the second quarter is largely powered by public administration sector. In fact, if the community services, public administration and defence sector is given half its growth estimate of 12.4% in Q2, in line with previous quarter’s growth, GDP growth comes down to 7%. The government and the Reserve Bank know this, which is why a rate hike before January appears unlikely. Rising inflation is leading to rising tempers in the Parliament, not quite a healthy way to resolve an issue that is hurting so many. Wholesale prices of many essentials are up: milk by 8.27% since March-end, pulses by 25.02% and though the sugar price rise has moderated, it is still expected to rise after March as supplies get tighter globally. So what is the solution here? Market reforms in the supply chains of agricultural produce have been mooted many times but not acted upon enough. Improvements in storage and processing of produce will also go a long way in improving supplies. And there are more linkages being ignored in the inflation story. Take for instance, the change in visa rules for employment of foreigners last month. On the face of it, this has nothing to do with inflation, but this is one example of how the government creates hurdles in the smooth flow of goods and services across the country. The new rules have taken Chinese workers off a road being constructed in Himachal Pradesh. A road bringing better connectivity to the apple belt, which contributes 40% of the state’s apple cultivation and which annually suffers from wastage of Rs. 1200 crore due to poor transportation. The new visa rules in fact are a true symbol of how the government works. One ministry has little to do with the other, the impact of a policy change is not fully understood, and the government effectively just treats the symptom and ignores the underlying cause of the problem. The main reason why foreigners with the same skill sets as Indians are getting jobs here are because efficiency and productivity, much needed by Indian firms, are not a part of ‘skills’ as defined by the government. It is of course easier to just change visa rules, rather than change vocational training education on a large enough scale to account for these deficiencies. But then again, without any structural changes, talking of a 9% growth rate becomes as unsustainable as the previous years. Overall therefore, there will be some tempering of the growth numbers next quarter. Inflationary pressures will continue in the short, medium and long term. Commodities will once again face inflationary pressures and so will real estate. The economy is warming up, and we see every reason for it to heat up in a couple of quarters. The real challenge for macro management will emerge in a couple of quarters.

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    Highlights • 7.9% growth in second quarter powered by govt, lower growth next quarter • Growth in 2009-10 still estimated by us at 6.7%, agriculture well factored in • As expected, exports decline even lower in October, return to low levels of positive growth by March • Inflation hits manufacturing as well as commodities rise on stronger growth • Capital controls on the radar as inflows increase From the beginning of this year, we have been predicting a growth rate for 2009-10 at 6.7%. While most analysts have been revising their estimates upwards throughout this year, we maintain our growth estimate, despite the high 7.9% release by the government for the second quarter. There are two reasons for this – one, as the government itself has pointed out, the impact of the drought this year will make itself felt only in the Q3 estimates, when the kharif output is out, and two, the high growth in the second quarter is largely powered by public administration sector. In fact, if the community services, public administration and defence sector is given half its growth estimate of 12.4% in Q2, in line with previous quarter’s growth, GDP growth comes down to 7%. The government and the Reserve Bank know this, which is why a rate hike before January appears unlikely. Rising inflation is leading to rising tempers in the Parliament, not quite a healthy way to resolve an issue that is hurting so many. Wholesale prices of many essentials are up: milk by 8.27% since March-end, pulses by 25.02% and though the sugar price rise has moderated, it is still expected to rise after March as supplies get tighter globally. So what is the solution here? Market reforms in the supply chains of agricultural produce have been mooted many times but not acted upon enough. Improvements in storage and processing of produce will also go a long way in improving supplies. And there are more linkages being ignored in the inflation story. Take for instance, the change in visa rules for employment of foreigners last month. On the face of it, this has nothing to do with inflation, but this is one example of how the government creates hurdles in the smooth flow of goods and services across the country. The new rules have taken Chinese workers off a road being constructed in Himachal Pradesh. A road bringing better connectivity to the apple belt, which contributes 40% of the state’s apple cultivation and which annually suffers from wastage of Rs. 1200 crore due to poor transportation. The new visa rules in fact are a true symbol of how the government works. One ministry has little to do with the other, the impact of a policy change is not fully understood, and the government effectively just treats the symptom and ignores the underlying cause of the problem. The main reason why foreigners with the same skill sets as Indians are getting jobs here are because efficiency and productivity, much needed by Indian firms, are not a part of ‘skills’ as defined by the government. It is of course easier to just change visa rules, rather than change vocational training education on a large enough scale to account for these deficiencies. But then again, without any structural changes, talking of a 9% growth rate becomes as unsustainable as the previous years. Overall therefore, there will be some tempering of the growth numbers next quarter. Inflationary pressures will continue in the short, medium and long term. Commodities will once again face inflationary pressures and so will real estate. The economy is warming up, and we see every reason for it to heat up in a couple of quarters. The real challenge for macro management will emerge in a couple of quarters.

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    Emerging Economy December 2009 Indicus Analytics

    Uploaded by

    Indicus Analytics
    Highlights • 7.9% growth in second quarter powered by govt, lower growth next quarter • Growth in 2009-10 still estimated by us at 6.7%, agriculture well factored in • As expected, exports decline even lower in October, return to low levels of positive growth by March • Inflation hits manufacturing as well as commodities rise on stronger growth • Capital controls on the radar as inflows increase From the beginning of this year, we have been predicting a growth rate for 2009-10 at 6.7%. While most analysts have been revising their estimates upwards throughout this year, we maintain our growth estimate, despite the high 7.9% release by the government for the second quarter. There are two reasons for this – one, as the government itself has pointed out, the impact of the drought this year will make itself felt only in the Q3 estimates, when the kharif output is out, and two, the high growth in the second quarter is largely powered by public administration sector. In fact, if the community services, public administration and defence sector is given half its growth estimate of 12.4% in Q2, in line with previous quarter’s growth, GDP growth comes down to 7%. The government and the Reserve Bank know this, which is why a rate hike before January appears unlikely. Rising inflation is leading to rising tempers in the Parliament, not quite a healthy way to resolve an issue that is hurting so many. Wholesale prices of many essentials are up: milk by 8.27% since March-end, pulses by 25.02% and though the sugar price rise has moderated, it is still expected to rise after March as supplies get tighter globally. So what is the solution here? Market reforms in the supply chains of agricultural produce have been mooted many times but not acted upon enough. Improvements in storage and processing of produce will also go a long way in improving supplies. And there are more linkages being ignored in the inflation story. Take for instance, the change in visa rules for employment of foreigners last month. On the face of it, this has nothing to do with inflation, but this is one example of how the government creates hurdles in the smooth flow of goods and services across the country. The new rules have taken Chinese workers off a road being constructed in Himachal Pradesh. A road bringing better connectivity to the apple belt, which contributes 40% of the state’s apple cultivation and which annually suffers from wastage of Rs. 1200 crore due to poor transportation. The new visa rules in fact are a true symbol of how the government works. One ministry has little to do with the other, the impact of a policy change is not fully understood, and the government effectively just treats the symptom and ignores the underlying cause of the problem. The main reason why foreigners with the same skill sets as Indians are getting jobs here are because efficiency and productivity, much needed by Indian firms, are not a part of ‘skills’ as defined by the government. It is of course easier to just change visa rules, rather than change vocational training education on a large enough scale to account for these deficiencies. But then again, without any structural changes, talking of a 9% growth rate becomes as unsustainable as the previous years. Overall therefore, there will be some tempering of the growth numbers next quarter. Inflationary pressures will continue in the short, medium and long term. Commodities will once again face inflationary pressures and so will real estate. The economy is warming up, and we see every reason for it to heat up in a couple of quarters. The real challenge for macro management will emerge in a couple of quarters.

    Copyright:

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    of 9

    Indicus Analytics, An Economics Research Firm

    http://indicus.net/Newsletter/Emerging_Economy.aspx

    The
    Emerging
    Economy
    – Monthly Newsletter from
    Indicus Analytics
    9th December 2009

    Highlights
    • 7.9% growth in second quarter powered by
    govt, lower growth next quarter
    • Growth in 2009-10 still estimated by us at
    6.7%, agriculture well factored in
    • As expected, exports decline even lower in
    October, return to low levels of positive growth
    by March
    • Inflation hits manufacturing as well as
    commodities rise on stronger growth
    • Capital controls on the radar as inflows increase
    Indicus Analytics, An Economics Research Firm
    http://indicus.net/Newsletter/Emerging_Economy.aspx

    From the beginning of this year, we have been predicting


    a growth rate for 2009-10 at 6.7%. While most analysts
    have been revising their estimates upwards throughout
    this year, we maintain our growth estimate, despite the
    high 7.9% release by the government for the second
    quarter. There are two reasons for this – one, as the
    government itself has pointed out, the impact of the
    drought this year will make itself felt only in the Q3
    estimates, when the kharif output is out, and two, the
    high growth in the second quarter is largely powered by
    public administration sector. In fact, if the community
    services, public administration and defence sector is given
    half its growth estimate of 12.4% in Q2, in line with
    previous quarter’s growth, GDP growth comes down to
    7%. The government and the Reserve Bank know this,
    which is why a rate hike before January appears unlikely.

    Rising inflation is leading to rising tempers in the


    Parliament, not quite a healthy way to resolve an issue
    that is hurting so many. Wholesale prices of many
    essentials are up: milk by 8.27% since March-end, pulses
    by 25.02% and though the sugar price rise has
    moderated, it is still expected to rise after March as
    supplies get tighter globally. So what is the solution here?
    Market reforms in the supply chains of agricultural
    produce have been mooted many times but not acted
    upon enough. Improvements in storage and processing of
    produce will also go a long way in improving supplies.

    And there are more linkages being ignored in the inflation


    story. Take for instance, the change in visa rules for
    employment of foreigners last month. On the face of it,
    this has nothing to do with inflation, but this is one
    example of how the government creates hurdles in the
    smooth flow of goods and services across the country. The
    new rules have taken Chinese workers off a road being
    constructed in Himachal Pradesh. A road bringing better
    Indicus Analytics, An Economics Research Firm
    http://indicus.net/Newsletter/Emerging_Economy.aspx

    connectivity to the apple belt, which contributes 40% of


    the state’s apple cultivation and which annually suffers
    from wastage of Rs. 1200 crore due to poor
    transportation.

    The new visa rules in fact are a true symbol of how the
    government works. One ministry has little to do with the
    other, the impact of a policy change is not fully
    understood, and the government effectively just treats the
    symptom and ignores the underlying cause of the
    problem. The main reason why foreigners with the same
    skill sets as Indians are getting jobs here are because
    efficiency and productivity, much needed by Indian firms,
    are not a part of ‘skills’ as defined by the government. It
    is of course easier to just change visa rules, rather than
    change vocational training education on a large enough
    scale to account for these deficiencies. But then again,
    without any structural changes, talking of a 9% growth
    rate becomes as unsustainable as the previous years.
    Overall therefore, there will be some tempering of the
    growth numbers next quarter. Inflationary pressures will
    continue in the short, medium and long term.
    Commodities will once again face inflationary pressures
    and so will real estate. The economy is warming up, and
    we see every reason for it to heat up in a couple of
    quarters. The real challenge for macro management will
    emerge in a couple of quarters.

    Please visit our homepage for updated interactive time


    series graphs of economic indicators and blog posts
    throughout the month.
    Indicus Analytics, An Economics Research Firm
    http://indicus.net/Newsletter/Emerging_Economy.aspx

    Sumita Kale and Laveesh Bhandari

    2nd December 2009, Indicus Analytics

    Sumita Kale is Chief Economist, and Laveesh Bhandari is


    Director, Indicus Analytics. They can be contacted at
    sumita@indicus.net and laveesh@indicus.net.

    Economic Growth

    • GDP growth for the second quarter of this year


    July-September has been estimated at 7.9% ,
    with agriculture showing a positive 0.9%
    growth, manufacturing at 9.1%, and the
    services sector at 9.3%
    • The highest performing sector was community
    services and public administration growing at
    12.7%, the impact of the Pay Commission
    payouts.
    • IIP for the month of September showed high
    growth of 9.1%, manufacturing at 9.3%, mining
    at 8.6% and electricity at 7.9%
    • HSBC- Markit PMI showed a dip in November in
    manufacturing activity, the index stood at 53
    compared to 54.5 in October. New orders index
    fell to 54.6, its weakest level since March
    • Electricity generation grew by a mere 2.2% in
    November, according to provisional data, while
    final figures for October show growth at 4.67%.
    • Car sales rose by double digits in November, as
    Maruti recorded a 60% growth, Hyundai 93%,
    Tata Motors 48%, while two wheeler sales were
    Indicus Analytics, An Economics Research Firm
    http://indicus.net/Newsletter/Emerging_Economy.aspx

    powered by Hero Honda which saw its highest


    sales ever in November – at 3.81 lakh units.
    • Railway freight traffic increased by 11.72% in
    October over the last year, a rise of 7.12% for
    the period April-October
    • Naukri Jobspeak index shows fall in hiring by
    3.8% in the month of October over the previous
    month. IteS, BPO, Pharma/Healthcare and
    Banking are the sectors with positive hiring
    growth in October.
    • Cement production increased by 6.6% in
    October over the previous year, while cement
    despatches rose by 9.0%
    • The Baltic Dry Freight Index rose to a 14 month
    high, reflecting higher global activity, while
    ports in India recorded 46.6 million tonnes of
    volume in October, a rise of 11% yoy.

    Read

    In conclusion

    Signs of a V shaped recovery

    Inflation

    • Reporting on the wholesale price index has


    changed since November 14th – weekly data
    released only on primary, fuel and light groups,
    while data on manufacturing goods released on
    monthly basis.
    • Provisional WPI inflation for October stands at
    1.3%, with manufacturing at 1.4%.
    • Weekly rate for primary articles rose to 11.0%
    while fuel and light group declined by 1.5%.
    • Consumer price indices continue to show sharp
    increases as these are heavily weighted by food
    Indicus Analytics, An Economics Research Firm
    http://indicus.net/Newsletter/Emerging_Economy.aspx

    items – CPI AL inflation stands at 13.73% and CPI


    IW at 11.49% in October.
    • Crude oil touched a high of $78.64 in November,
    the highest it has been since last October – crude
    oil price averaged higher by 46.12% in November.
    • While sugar price rise has moderated in the last
    few weeks, the outlook for the year ahead is not
    positive for consumers as supply constraints
    plague the global market.
    • HSBC-Markit PMI survey showed strongest rise in
    output prices in November, since last September,
    pointing to the pressures coming in from higher
    input prices.

    Read

    Mixed veg – the real story on food prices

    Sugar prices to stay high, may even rise after March

    Interest Rates

    • The yield on the 10 year benchmark gilt that had


    fallen in the last week of November due to higher
    liquidity rose sharply on the 30th of November to
    touch 7.2798% on 1st December as the high growth
    estimates pointed to a tighter monetary policy
    ahead.
    • The Reserve Bank is looking to make further moves
    on its exit strategy but given the fact that growth is
    still looking weak, rates would in all probability be
    raised slowly from January onwards, depending on
    the credit offtake and the inflationary pressures
    coming in from manufactured items
    • Reserve Bank of Australia tightened for the third
    consecutive month, creating a record of three
    straight increases.
    Indicus Analytics, An Economics Research Firm
    http://indicus.net/Newsletter/Emerging_Economy.aspx

    • While Israel has gone in for a rate hike as well,


    unexpectedly, Korea and Indonesia are still holding
    out, Brazil has chosen to put a tax on short-term
    capital inflows to discourage volatile capital
    movements.
    • The major banks of ECB, Bank of England and the
    Federal Reserve are not expected to move on rate
    hikes for another quarter at least, given the weak
    growth in their economies. The fallout of the low
    rates in the US, however, has been on the exchange
    rate.

    Read

    Tighter capital controls in Asia inevitable

    Exchange Rates

    • Exports declined by 6.6% in dollar terms in October


    over the previous year (minus 10.3% in rupee
    terms), standing at $13.193 billion. Imports valued
    at $ 21.994 fell by 15% in dollar terms( minus
    18.4% in rupee terms) in October.
    • Oil imports were lower by 9.3% in October while
    non-oil imports were down by 17.2%.
    • Trade balance estimated at $ 57.318 billion was less
    than deficit of $87.827 billion for the period April-
    October.
    • This level of trade reflects the lower level of global
    activity – a fall by 11.9% in trade volume according
    to IMF estimates and lower commodity prices by
    20.3%, oil prices have averaged 36.6% less than in
    2008.
    • However, this trend has already reversed and can be
    expected to exert pressures on the rupee in the
    Indicus Analytics, An Economics Research Firm
    http://indicus.net/Newsletter/Emerging_Economy.aspx

    months ahead. Copper has hit a 15 month high, gold


    has surged to a record $1200 an ounce
    • Forex reserves stood at $ 285.344 billion for the
    week ending November 20th, a rise of $ 29.376 billion
    over last year.
    • FII investments to the tune of $1.183 billion in equity
    and $ 0.147 billion in debt have taken the total net
    investment since January 2009 to $15.258 billion in
    equity and $1.375 billion in debt markets –
    compared to a net outflow of $ 12.332 billion in
    equity markets during the period April-November
    2008.
    • Capital inflows have pushed the rupee up – a high of
    46.09 to the dollar in November and low of 47.13,
    compounding the pressures coming in from a weak
    dollar overseas.

    Read

    Has RBI been diversifying out of dollars?

    Dollar/yen reversal in prospect

    The great trade collapse

    Recommendations

    When foreigners build roads better

    Experts raise growth predictions for India

    A dining table drought


    Indicus Analytics, An Economics Research Firm
    http://indicus.net/Newsletter/Emerging_Economy.aspx

    For query or placing orders on


    Indicus Products
    please contact

    Indicus Analytics Pvt. Ltd.


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    New Delhi- 110002.
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