India Economy Overview from this month’s AZ China India Report

By: Paul Adkins | Comments: 0 | Category: India

The weakening of the Indian rupee reflects the country’s high current account deficit and lower capital inflows, but Moody’s stated it might not significantly impact India’s foreign debt repayment capacity. The rating agency’s current rating for India is BAA3, the lowest stable investment-grade level. Fitch Rankings and Standard & Poor’s however maintain the outlook as negative. The Indian currency slumped to a record low of 61.21 rupees to the US dollar, a drop that had a cascading effect of an increase of between 15 to 20 per cent in the prices of petroleum products and edible oil. A global sell-off has made the rupee currency the worst-performing emerging Asian currency so far this year. The rupee’s relentless fall has almost dashed hopes for an interest rate cut at the Reserve Bank of India’s (RBI) next monetary policy review on July 30, inflationary pressures having increased. And despite efforts by the government to control gold imports, Indians continue to buy the metal.

Headline inflation during June 2013 rose to 4.86 per cent, driven by higher food prices, adding to the economic challenges facing the Indian government and reducing the odds of an early national election. The inflation data followed on the heels of a contraction in industrial output, a fall in exports and higher retail inflation (up at 9.87 per cent), suggesting that a recovery from the downturn is still far off. Inflation has been a major factor in the declining popularity of the Congress-led coalition government. A sharp moderation in price pressures in recent months had given the beleaguered government hope ahead of a string of state elections scheduled this year and the national election due by May 2014.
Reforms in India’s power sector began gathering pace as a “pass through” of imported coal costs was allowed under modified Fuel Supply Agreements (FSAs). The sector still faces constraints in terms of gas availability and pricing, environment clearances, the state electricity boards’ financials and rising debtors. Overall power generation increased 5.7 per cent YoY in May 2013, as a result of growth in generation by coal and hydro based plants.
India’s exports during June 2013 declined for the second consecutive month, falling by 4.6 per cent to US$ 23.79 billion as compared to the same month a year ago. Imports fell by 0.4 percent during the month to US$ 36.03 billion YoY. The trade deficit declined to US$ 12.25 billion in June 2013 from US$ 20.14 billion in the preceding month, albeit higher than the US$ 11.24 billion deficit YoY. Exports during 1Q2013-14 declined by 1.4 per cent to US$ 72.45 billion as compared to the same period a year ago, but imports rose by six per cent to US$ 122.64 billion. Given the rise in imports against exports, the trade deficit for the quarter widened to US$ 50.18 billion during the quarter from the US$ 42.22 billion level YoY.
India’s primary aluminium and aluminium items imports during May 2013 increased by almost 12.5 per cent over the April 2013 value to US$ 307.44 million.
Passenger cars sales in India declined for the eighth straight month, dropping by 7.24 per cent for 1Q2012-13. Overall, the vehicle industry registered a drop in production of 4.73 per cent in June YoY, and overall domestic vehicle sales during 1Q2013-14 declined by 2.1per cent YoY.

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