Is India Growth story set to fizzle out?


The much touted India shining story seems to be losing its sheen on multiple counts. The optimism on the growth momentum is fizzling out on various parameters including interest rate tightening, slowed industrial production, high food inflation, rising fuel prices, declining car sales, defaulting domestic airline carriers, negative outlook for Indian banks, burgeoning fiscal deficit, worsening trade deficit, execution hurdles in the infrastructure sector, depreciating currency, disappointing earnings performance of India Inc and also non-economic factors like rampant corruption and lack of political stability.

Thus, there is ample evidence that the India growth story is stuttering on various counts, which it needs to gradually reform and improve upon in times to come, amidst the prevailing environment of global macroeconomic uncertainty and euro zone sovereign debt crisis.

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September IIP data logs Tepid 1.9% growth

First things first. As per the latest industrial output data for the month of September 2011, the production at factories, mines and utilities have moved at slowest pace in two years by logging in a tepid growth rate of 1.9% as against the same month last year.

While manufacturing sector, which contributes almost two-thirds of the overall IIP index, grew a slower 2.1% in September; the mining sector and capital goods output contracted by 5.6% and 6.8% respectively.

Rupee sinks Below 50 per Dollar mark

Even as I write this, the value of India rupee quotes at 50.20 against a US dollar on the currency exchange, which has already slumped to its 30-month low against a dollar, amid strong dollar demand from banks and importers and reemergence of the American currency as a safe-haven global asset.

Furthermore, declining trend in FDI investments, outflow of hot FII money on account of global turbulence, worsening trade deficit and slowed momentum of domestic growth has kept the value of Indian rupee subdued with a bearish outlook.

Declining Car Sales during Festivities

The months of September and October are believed to be peak of festive season in India. Moreover, you can be sure that the growth momentum is stuttering in India if this festive season logs in tepid vehicle sales, pointing towards declining trend in the consumer spending activities.

The fact that the Indian passenger vehicle sales have tumbled the most in more than a decade, confirms that the spending power of Indian consumers has gone down with rising interest rate burden. While strike-hit Maruti Suzuki’s October sales slumped by 53% to 55595 units as compared to last year, Tata Motors October sales were up only 5% to 68009 vehicles.

While there were plenty of new car launches to feed on the festive season, the auto-makers just could not leverage on the occasion with gung-ho vehicular sales.

Negative outlook for Indian Banks

The latest move to hit India is downgrade of outlook for its banking system by rating agency Moody’s to negative from stable; citing slowdown in domestic economic growth, demand stifled by high interest rates and weaker asset quality affecting profitability.

Moody’s vice-president Vineet Gupta quoted his pessimistic outlook as:

“With asset quality, given the tightening environment, we anticipate that it will deteriorate over the next 12-18 months, thereby causing an increase in provisioning needs for the banks in FY2012 and FY2013.”

India’s Q2 fiscal Deficit doubles

India’s fiscal deficit for the April-September 2011 quarter stood at Rs.2.92 lakh crore, higher by 120% from Rs.1.33 lakh crore year on year. Revenue deficit for the second quarter FY12 came in at Rs.2.33 lakh crore as against Rs.74000 crore a year ago.

More alarmingly, India’s fiscal deficit has already reached 71% of the FY12 estimated figures, in the first half of 2011-12, marred by tepid infrastructure output growth and unsustainable subsidy bills.

Indian Exports stutters on Euro zone crisis

India’s export growth came in at a subdued 12.4% growth rate to $19.9 billion in October 2011 as compared to last year, stung by lag effect of worsening euro zone crisis affecting Indian exports and shipments.

Moreover, lower-than-expected exports has raised October trade deficit of India at unrelenting $19.6 billion, pushing it to a 4-year high. The total trade deficit for the first seven months of FY12 stood at record $93.7 billion, further fuelling inflationary concerns in the economy.

Will India’s growth momentum sustain in the midst of global turbulence?

  1. Bhaskarr Kumar Ratnakar says

    I want to know if india growth rate is a myth or reality.

  2. Stocks Tips Intraday says

    The Reserve Bank of India (RBI) chief Duvvuri Subbarao on Tuesday said monetary steps may be warranted to curb inflation expectations in face of sustained high food inflation, flagging the need to revisit politically sensitive subsidy schemes in agriculture.
    It will be interesting now to see what kind of monetary steps is on the way. Up-to-yet D Subbarao has failed to curb the inflation .

  3. This was just bound to happen, we have no control over the growth of population, a majority of our agriculture produce is dependent on the monsoons, and our production methods are still very primitive. Reducing the Purchasing power of the people is of no use as we’ll need to increase supply, our population is so huge now that supply creates its own demand. All of these things could have been predicted and measures could have been taken in easily, but it seems as though the Manmohan Singh government has lost its efficiency now.

  4. Altaf Rahman says

    Two major factors contributing to negetive impact on Indian growth are illogical mining policy and illogical inflation control measures taken by mindless government.

    1) Mining policy :
    India never had a logical mining policy. The new policy is more illogical than the old one thats all.
    Earlier mining policy : In order to encourage companies to invest, govt has alloted mines free of cost to companies whether they are govt or private.
    e.g. coal mines are alotted to NTPC to mine and feed their power plants. Iron ore mines are alotted to Tata steel to mine and feed their Steel plants. Bauxite mines are alotted to Hindalco to feed their Aluminium Plants.
    Though the mines belong to the nation, govt alotted them free to companies just to have some industries. (Ofcourse they charge so many silly things like excise, cess etc to feed hungry mouths of state govts).
    New policy : The govt suddenly got aware of local poor and ordered the companies to pay 26% of profits to local bodies.
    Both these policies are wrong. Govt has to assert its ownership over the mines. They should establish the content of every mine, its worth and sell it to any company willing to have a mine. Govt has to take care of the poor people with the money. They should have their own professional environmental depts to monitor the mining activities. Govt has no ability to sell its mines. They dont have ability to take care of poor. So they are clubbing mining activity with taking care of poor and involving industry in it (just to wash their hands of their responsibility). There are many ways things can get messed up. Evil companies may manipulate documents to show tey are sharing profits with poor. Local goondas can squeeze hafta from companies to allow mining and leave poor in the lurch.
    With such mining policies, govt can not attract investment. The proof is in the pudding. Mining has come to a stand still in many areas. With less mined produce, industry is suffering (less steel production, less power generation, less cement production).
    With less production, Industrial activity comes down effecting GDP figures.

    2) Interest rate hike by RBI :
    To cover up its inability to control inflation, they are putting pressure on RBI to control liquidity. This is having adverse effect. With high interest rates, either industry or individuals reduce their expenditure. Industry will not take up expansions. Individuals control expenditure (proof is reduced car sales as stated above).
    Not only it is making reduced industrial production, the increased costs are creating difficulties to ordinary civilians. Their purchase power is going down.

    What do you expect when you have mindless govt handing over authority to take any decision to stupid ministers ?
    See the examples :
    Kapil Sibal says if 5 IITs can produce 5000 brilliant Engineers, why not have 20 IITs producing 20000 brilliant engineers?
    Raja says why he can not sell 2G spectrum to companies of his choice but at 10 years back prices?
    Kalmadi says why he can not have contractors with out past record construct infrastructure for CWG? Why he can not accept humble gifts from such companies with gratitude?
    Mamata says why she can not scare away investors by voilent means?
    Maha CM says why he can not have one flat in a apartment building dedicated to jawans who lost their lives protecting India’s sovernity? He argues that as he is CM, he is serving people and he also qualifies for patriot.

    In every issue I mentioned above, there are no law to take care of culprits. The justice is on adhoc basis and to satisfy popular sentiment. We should have laws to take care of all kinds of eventualities. Thats what govts are there for. Isn’t it?

    Just my two paisa :)

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