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.
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?