Wednesday, June 12, 2013


Dear All,

Fitch upgrades India 's outlook to stable from negative

India remains one of the most dynamic and diversified economies in the world
According to Fitch Ratings, the revision of its Outlook to Stable reflects the measures taken by the government to contain the budget deficit, including the commitments made in the FY14 budget, along with the limited progress made in addressing some of the structural impediments to investment and economic growth.
Fitch has affirmed its Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-'. The agency has also affirmed the Country Ceiling at 'BBB-' and the Short-Term Foreign-Currency IDR at 'F3'.
The agency felt that the government has been successful in containing the upward pressure on the central government budget deficit in the face of a weaker-than-expected economy. Moreover, it is likely that India will meet its FY14 budget deficit target of 4.8% of GDP and gradually reduce the high level of public debt over the medium-term since the government has already begun to address structural factors that have weakened the investment climate and growth prospects, notably regulatory uncertainty, delays in government approvals of investment projects and supply bottlenecks. The agency added that the establishment of a Cabinet Committee on Investment should help to fast-track infrastructure-related projects. Nonetheless, it feels that the investment climate could benefit from further reforms, such as the new land acquisition bill, some liberalisation of insurance and pension provision and public procurement. Addressing the structural issues in the power and mining sectors would further boost investor confidence.
Fitch also noted that inflation pressures have begun to show more pronounced signs of easing in response to weaker economic conditions and the tightening of monetary conditions by the RBI during the course of 2011-12. Fitch added that the economy is expected to recover after real GDP grew just 5% in FY13 (vs. 6.2% in FY12). However, India 's economic recovery is likely to remain slow until a healthier investment climate is created, which helps lift potential growth again.
On the banking side, Fitch reported that the profitability and capital position of the banking sector will remain under pressure as asset quality continues to gradually deteriorate. Nonetheless, Fitch does not view the banking sector as a material risk to macro-financial stability nor to public finances in terms of the crystallisation of large contingent liabilities. Fitch considers India 's overall external position to be a relative rating strength, despite deterioration in the current account deficit. India 's investment-grade ratings are also underpinned by high domestic savings rates that limit the reliance on foreign savings for private investment and fiscal funding, as well as by a relative long maturity of government debt issued in its own currency. While Fitch has revised down its assumption regarding potential growth to 6%-7% from 8%-9%, it remains one of the most dynamic and diversified economies in the world. However, India 's sovereign ratings remain constrained by persistent structural budget deficits and high public debt as well as by the challenges associated with large segments of the population engaged in low-valued added activities.
Warm regards,

Dr. S P Sharma
Chief Economist

April 2013 IIP grows at 2%

Growth in industry output, as measured in terms of IIP, for the month of April 2013 is estimated at 2% as compared with 2.5% during March 2013. The cumulative growth for the period April-March 2012-13 stands at 1.1% as compared to 2.9% in the corresponding period of the previous year.

The growth in the three sectors mining, manufacturing and electricity in April 2013 stands at (-) 3%, 2.8% and 0.7% as compared to (-) 2.9%, 3.2% and 3.5% during March 2013 respectively. The cumulative growth for the period April- March 2012- 2013 in the three sectors mining, manufacturing and electricity over the corresponding year stands at (-) 2.4%, 1.2% and 4% respectively.

   Recent growth pattern in IIP                                                                               (% growth)
Industry Group
Weight in IIP
Apr- Mar
Use based classification
Basic goods
Capital goods
Intermediate goods
Consumer Goods
Consumer goods
a) Consumer durables
b) Consumer non-durables
Overall IIP



       Source: PHD Research Bureau, compiled from CSO

Basic goods have grown at 1.3% during April 2013 as compared to 2.6% during March 2013. The cumulative growth during April - March 2012-13 stands at 2.4% as compared to 5.5% during the corresponding period of last year. Consumer goods have grown at 2.8% during April 2013 as compared to 1.6% during March 2013. Consumer durables have grown at (-) 8.3% during April 2013 as compared to (-) 4.5% during March 2013, while consumer non durables have grown at 12.3% during April 2013 as compared to 6.5% during March 2013.

The cumulative growth of consumer goods during Apr-March 2012-13 stands at 2.4% as against 4.4% during the corresponding period last year. Consumer durables have shown a cumulative growth of 2.1% during Apr-March 2012-13  as against 2.6% during Apr-March 2011-12, while consumer non durables have shown a cumulative growth of 2.7% during Apr-March 2012-13 as compared to 5.9% during Apr-March 2011-12.

Some of the important items showing high positive growth during the current month over the same month in previous year includes; Woollen Carpets (172.3%), Apparels (96.4%), Naphtha (25.1%), Vitamins (136.6%), PVC Pipes and Tubes (36.9%), Conductor, Aluminium (47.8%), Cable, Rubber Insulated (98.3%), Three-wheelers (including passenger and goods carrier (21.4%), Gems and Jewellery (24.5%) and Pens of all kind (36.8%).

Some of the other important items showing high negative growth are Cigarettes (-) 37.8%, Terry Towel (-) 21.8%, Di Ammonium Phosphate (DAP) (-) 44.7%, Grinding Wheels (-) 29.6%, Copper and Copper Products (-) 47.0%, Boilers (-) 47.3%, Heat Exchangers (-) 47.9%, Earth Moving Machinery (-) 32.8%, Sugar Machinery (-) 79.2%, Plastic Machinery Incl. Moulding Machinery (-) 39.4%, Computers (-) 41.7% and Telephone Instruments including Mobile Phones & Accessories (-) 30.9%.

Trend in IIP growth                                                                                     (%)
  Source: PHD Research Bureau, compiled from CSO

Capital goods have grown at 1% during April 2013 as compared to 6.9% during March 2013. The cumulative growth of capital goods stands at (-) 6.1% during April- March 2012-13 as compared to (-) 4% during April- March 2011-12.

Trend in the growth of capital goods                                                     (%)
  Source: PHD Research Bureau, compiled from CSO

Warm regards,

Dr. S P Sharma
Chief Economist

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